<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 3, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
Commission File Number 0-20001
NATIONAL VISION ASSOCIATES, LTD.
(Exact name of Registrant as specified in its charter)
Georgia
(State or other jurisdiction of
incorporation or organization)
58-1910859
(I.R.S. Employer Identification No.)
296 Grayson Highway
Lawrenceville, Georgia
(Address of principal executive offices)
30045
(Zip Code)
Registrant's telephone number, including area code: (770) 822-3600
Securities registered pursuant to Section 12(b) of the Act:
None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The number of shares of Common Stock of the registrant outstanding as
of February 3, 1998, was 20,819,955. The aggregate market value of shares
of Common Stock held by non-affiliates of the registrant as of February 3,
1998, was approximately $103.6 million based on a closing price of $5.50
on the NASDAQ Stock Market on such date. For purposes of this computation,
all executive officers and directors of the registrant are deemed to be
affiliates. Such determination should not be deemed to be an admission
that such directors and officers are, in fact, affiliates of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents have been incorporated by reference
into the parts indicated: the Company's definitive Proxy Statement for the
1998 Annual Meeting of Shareholders to be filed with the Securities and
Exchange Commission not later than 120 days after the end of the fiscal year
covered by this report--Part III.
The Exhibit Index is located at pages 24 - 26.
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PART I
ITEM 1. BUSINESS
National Vision Associates, Ltd. (the "Company") is engaged in the
retail sale of optical goods and services. As of February 3, 1998, the
Company operates a total of 447 vision centers, 418 of which are in the
United States. Pursuant to an agreement (the "Wal-Mart Agreement") with
Wal-Mart Stores, Inc. ("Wal-Mart"), the Company operates, as of February 3,
1998, 361 retail vision centers in stores owned and operated by Wal-Mart.
As of the same date, the Company also operates 26 vision centers in Mexico
pursuant to a license agreement (the "Mexico Agreement") with Wal-Mart de
Mexico, S.A. de C.V. ("Wal-Mart Mexico").
To reduce its dependence on Wal-Mart, and to create additional growth
opportunities, the Company decided in 1997 to develop its own free-standing
locations, initially through the acquisition of regional optical chains.
As a result, in October 1997 the Company acquired Midwest Vision, Inc., a
chain of 51 locations located primarily in Minnesota. (See Note 4 to
consolidated financial statements.)
MARKETING STRATEGY
The Company generally employs a marketing philosophy of offering
quality and value with "customer satisfaction guaranteed." Management
constantly strives to identify new means of accomplishing its overall
goal of being a low-cost provider of quality retail optical products.
VISION CENTER OPERATIONS
Each of the Company's existing Wal-Mart vision centers occupies
approximately 1,000 square feet in the front of the host store, with
separate areas for merchandise display, customer service, contact lens
fitting and a laboratory. Services of independent optometrists are
available from clinics which are approximately 500 square feet and located
in, adjacent to, or nearby the vision center, depending on regulatory
requirements. Each vision center has a laboratory containing a patternless
edging and fitting unit and other equipment that, coupled with the on-site
inventory of frames, spectacle lenses, and contact lenses, allow the
Company to give prompt, one-hour service to many customers who request
quick delivery. In each vision center, the Company maintains an
on-premises inventory of approximately 1,200 eyeglass frames, 725
pairs of spectacle lenses, and 550 pairs of contact lenses, together
with assorted sunglasses, eyeglass cases, eyeglass accessories, and
contact lens accessories. Midwest Vision locations are comparable except
that they carry less inventory and do not contain a laboratory.
OPTOMETRISTS
A key element of the Company's business strategy is the availability
of independent optometrists at clinics in, adjacent to, or nearby the
Company's vision centers. Additionally, the Wal-Mart Agreement requires
that such services be available for a minimum of 48 hours per week to the
extent permitted by applicable law. These optometrists, whose activities
and relationships with entities such as the Company are subject to state
and local regulation, are not employed by, and receive no compensation from,
the Company. See "Government Regulation." Such independent optometrists
sublicense the eye examination facilities and equipment from the Company.
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In January 1997, the Company completed various transactions related to
its relationship with each of Eyecare Leasing, Inc., which had previously
recruited optometrists for the Company pursuant to a consulting agreement,
and Stewart-Phillips, Inc., which had recruited optometrists practicing
adjacent to the Company's vision centers in California. The transactions
involved the termination of such consulting agreement and transfer of
the responsibilities of Stewart-Phillips, Inc. to a subsidiary of the
Company. (See Note 3 to consolidated financial statements.)
MANAGEMENT INFORMATION AND FINANCIAL SYSTEMS
In 1996, the Company completed the installation of a new point of sale
system and a new perpetual inventory system in all domestic store locations.
The system facilitates the processing of customer sales information and
replenishment of store inventory by passing such information, including
customer specific orders, to the Company's home office and Company in-house
lens laboratory for further processing.
The Company is in the process of developing an enhanced point of sale
software system which is scheduled to be in the retail stores by the
fourth quarter of 1999. The primary purpose of the system is to upgrade
data processing, broaden in-store capabilities, and improve the processing
of managed care sales transactions. In addition to the above improvements,
the system will be designed to be Year 2000 compliant.
YEAR 2000 COMPLIANCE
The majority of the Company's internal information systems are currently
Year 2000 compliant or in the process of being replaced with fully-compliant
new systems. The Company has identified approximately 220 point of sale
systems that require hardware upgrades to be Year 2000 compliant. The total
cost of software changes, hardware changes, and implementation is estimated
to be approximately $650,000. Costs related to hardware and new software
purchases will be capitalized as incurred and amortized over three years.
These new system modifications are expected to be completed in the second half
of 1999.
Some of the Company's vendors, financial institutions, and managed care
organizations utilize equipment to capture and transmit transactions. The
Company is in the process of coordinating its Year 2000 compliance efforts
with those of such organizations. The estimated future cost of this
transition is minimal. No assurance can be given that such organizations
will make their systems Year 2000 compliant.
The Company will utilize both internal and external resources to
reprogram, or replace, and test software for Year 2000 compliance. The costs
of the Year 2000 project and the date on which the Company plans to complete
Year 2000 modifications are based on management's best estimates, which
were derived utilizing numerous assumptions of future events including the
continued availability of certain resources, third party modification plans
and other factors. However, there can be no guarantee that these estimates
will be realized and actual results could differ materially from those plans.
RELATIONSHIP WITH HOST COMPANIES
Master Agreements
-----------------
The Company's relationship with each of Wal-Mart and Wal-Mart Mexico
is governed by a master license agreement which grants a separate license
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to the Company for each vision center. Each agreement provides for the
payment of minimum and percentage license fees and contains other customary
terms and conditions. Certain terms are described below:
<TABLE>
<CAPTION>
Term of Company
Each License Options Other
------------ ------- -----
<S> <C> <C> <C>
Wal-Mart one for
Agreement 9 yrs. three yrs. 1
Mexico
Agreement 5 yrs. two for two 2
yrs.; one
for one yr.
</TABLE>
(1) The Wal-Mart Agreement, as amended, provides that Wal-Mart is to offer
the Company the opportunity to open, no later than April 30, 2000, at
least 400 vision centers (including those currently open). In January
1995, the Company made a lump sum payment in exchange for such commitment.
Such payment is being amortized over the initial term of vision centers
opened after January 1, 1995. In 1997, the Wal-Mart Agreement was amended
to provide that, with one exception, all new vision centers opened after
1997 will be located in California and North Carolina.
(2) The Company has a right of first refusal in Mexico for any store in which
Wal-Mart Mexico proposes to open a vision center. The Mexico Agreement
contains a mutual non-competition agreement preventing each party from
dealing with other parties (excluding affiliates of the Company and
Wal-Mart Mexico) in Mexico for the operation of vision centers in a host
environment. The Mexico Agreement also contains provisions which
entitle each party to terminate the license for each vision center if
such vision center fails to meet certain minimum sales requirements.
The Company opened six vision centers in 1990 under the Wal-Mart
Agreement and 54 such vision centers in 1991, with additional vision
centers being opened in subsequent years. Accordingly, beginning in 1999,
the Company will determine whether to exercise the three-year options to
extend the licenses for vision centers reaching the ninth year of operation.
The Company will make such decisions based upon various factors, including,
without limitation, the sales levels of each vision center, its estimated
future profitability, increased minimum license fees charged by Wal-Mart
during the option period, and other relevant factors. Each option must be
exercised at least six months prior to the expiration of the license for
each vision center. Although the Company expects that it will extend the
licenses of a substantial majority of these vision centers, no assurance can
be given as to the number of vision centers the licenses of which will be
extended.
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No Assurances of Expansion in Host Stores
-----------------------------------------
Future additional expansion in stores of any of the Company's hosts
beyond those currently under contract is out of the control of the Company
and there can be no assurance that any host will offer the Company any
additional vision centers or that any such offer will be on terms that are
the same as or similar to the terms contained in the current agreements.
Management periodically discusses expansion opportunities and other matters
with each host, but there can be no assurance that these discussions will
result in additional vision centers being offered to the Company.
Wal-Mart operates its own optical division. As of January 3, 1998,
such division operated approximately 680 vision centers. No assurance can
be given that, after the Company has opened 400 locations pursuant to the
Wal-Mart Agreement, Wal-Mart will not allocate all vision centers to its
own optical division.
The Company regularly explores opportunities to expand outside of its
existing host environments and continues to consider various options, such
as acquiring optical companies, opening free-standing vision centers, and
expanding in another host environment. Management currently believes that
the Company's most likely avenue of additional expansion will be through
the acquisition and development of free-standing locations.
Manufacturing and Distribution
------------------------------
The Company currently utilizes three in-house lens laboratories and
one independent laboratory to manufacture prescription eyeglasses for its
vision centers. One such laboratory was owned by Midwest Vision and was
acquired by the Company as part of that acquisition. Substantially all
prescription spectacle requirements of the Company's domestic vision centers
opened in the future will be supplied from Company-owned laboratories. The
Company has a state-of-the-art coating facility in its Lawrenceville
headquarters, capable of coating lenses with anti-reflective and mirror
surfaces. Each vision center in Wal-Mart stores has its own finishing
laboratory which manufactures lenses for approximately half of all
customers purchasing spectacle lenses.
The Company's centralized distribution center in its Lawrenceville,
Georgia headquarters facility provides lens blanks, frames, sunglasses
and contact lenses to all vision centers. The Company's central
distribution center and all laboratories are interfaced with the Company's
management information system. The Company's central distribution center
ships completed customer orders and inventory replenishment requirements,
including frames, and spectacle and contact lenses, to the Company's vision
centers throughout the United States by overnight delivery services. The
Company maintains a secondary distribution center at the Midwest Vision
regional headquarters, which primarily ships completed customer orders to
the Midwest Vision stores.
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Government Regulation
---------------------
The Company is subject to a variety of federal, state, and local
laws, regulations, and ordinances, including state and local laws and
regulations regarding advertising, qualifications and practices of
the opticians employed by the Company, relations between independent
optometrists and optical firms such as the Company, and various trade
practices such as country of origin product labeling. In addition,
certain of the Company's products, specifically contact lenses and
contact lens solutions, must comply with quality control standards
set by the United States Food and Drug Administration. Through its
participation in Medicare and in managed care programs, the Company
is also subject to a variety of other laws, such as the Federal Anti-
Kickback Statute and the Health Insurance Portability Act of 1996.
Although government regulation has increased the cost to the
Company of commencing operations and decreased its flexibility in managing
its business, government regulation has not, to date, had a material
adverse effect on the Company's overall operations or financial
performance, or on its overall relationships with independent optometrists.
It is nevertheless possible that new regulations or new interpretations of
current regulations could materially increase the Company's cost of doing
business or have a material adverse impact on the Company's sales by
restricting or eliminating the services of opticians or optometrists in,
adjacent to, or nearby the Company's vision centers. This risk is enhanced
since the Company's competitors often serve as, or exert influence on,
local regulators of the eyecare industry. Additional risk is created
because of the Company's increasing involvement in managed care plans and
general increased oversight by federal and state governments of managed
care relationships and operations.
The Company believes it is in substantial compliance with all material
governmental regulations applicable to its operations.
Competition
-----------
The retail eyecare industry in the United States is highly
competitive. In addition to optical chains such as Cole Vision and
LensCrafters, there are numerous retail optical stores, individual retail
outlets and individual opticians, optometrists, and ophthalmologists
providing the public all or some of the goods and services the Company
sells or makes available through its vision centers. Optical retailers
generally serve individual, local or regional markets, and, as a result,
competition is fragmented and varies substantially among locations and
geographic areas. Several of the Company's competitors have financial
resources substantially greater than those of the Company.
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The Company believes that its primary competitive advantages are its
locations in a prominent position in its host stores, its quality products
and value at low prices, and its customer-driven service philosophy.
Additionally, the Company competes on the basis of the quality and
consistency of service, convenience, speed of delivery, and selection.
In addition to competition for individual patients, there is
increasing competition in the eyecare industry for managed care contracts
with insurance companies, employers, and other groups. The Company
believes that the competitive advantages described above will help the
Company compete for managed care contracts. The density and size of a
vision care network are also a significant competitive aspect, however.
Several other optical chains, as well as other organizations of vision
care providers, have more service locations and cover more geographical
areas than does the Company.
Mexican Operations
------------------
RISKS. The Company's Mexican operations face risks substantially
similar to those faced by the Company in connection with its domestic
operations, including dependence on the host store and expansion
requirements. There can be no assurance that such operations will be
able to attain profitability. In addition, such operations expose the
Company to all of the risks arising from investing and operating in
foreign countries generally, including a different regulatory, political,
and governmental environment, currency fluctuations, currency devaluations,
inflation, price controls, restrictions on profit repatriation, lower per
capita income and spending levels, import duties and other impediments to
the delivery of inventory and equipment to vision center locations,
value-added taxes, and difficulties of cross-cultural marketing.
ECONOMIC AND POLITICAL ENVIRONMENT. Regulations in Mexico do not
currently include currency controls, restrictions on profit repatriation,
limitations on foreign ownership, or restrictions on sourcing of products
that would adversely affect the Company's operations. The cumulative
translation adjustment in shareholders' equity for operations in foreign
countries at January 3, 1998 was $4.1 million.
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As a result of inflation in prior years, the Company has in the past
adjusted its retail pricing. Further pricing adjustments are contingent
upon competitive pricing levels in the marketplace. Management is monitoring
the continuing impact of these inflationary trends.
The Securities and Exchange Commission has qualified Mexico as a highly
inflationary economy under the provisions of SFAS No. 52, "Foreign Currency
Translation". Consequently, in 1997, the financial statements of the
Mexico operation were remeasured with the U.S. dollar as the functional
currency. During 1997, an immaterial loss resulted from changes in foreign
currency rates between the peso and the U.S. dollar, as calculated in the
remeasurement process, and was recorded in the Company's statement of
operations.
Trade Names and Trademarks
--------------------------
The Wal-Mart Agreement provides that, in connection with its Wal-Mart
vision centers, the Company must use the tradename "Vision Center located
in Wal-Mart" and indicate that the vision centers are operated by the
Company. Vision centers in stores owned by Wal-Mart Mexico do business
under the name "Centro de Vision." The Company also has licensed the
right to use the "Gitano" and "Guy Laroche" trademarks in its domestic
vision centers pursuant to license agreements providing for royalty
payments and containing other customary terms and conditions. The
Gitano agreement expired on June 30, 1997. Discussions concerning
extension of the Gitano agreement are in progress. The Guy Laroche
agreement expires December 31, 2001.
Employees
---------
As of January 3, 1998, the Company employed 2,040 associates on a
full-time basis and 819 associates on a part-time basis, of whom 2,468
were engaged in retail sales, 188 in laboratory and distribution operations,
and 203 in management and administration. Apart from its Mexican employees,
none of the associates employed by the Company are covered by any collective
bargaining agreements. All associates (with the exception of home office
personnel) employed in the Company's Mexican operations are covered by
collective bargaining agreements. The Company considers its employment
relations to be good, and to date the Company has not experienced any
significant difficulties in staffing its vision centers.
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Foreign and Domestic Operations
-------------------------------
See Note 14 to the consolidated financial statements contained
elsewhere in this report for additional information regarding the
Company's foreign and domestic operations.
ITEM 2. PROPERTIES
The Company's 413 domestic vision centers in operation as of
January 3, 1998 are located in the following states:
Alabama 7 New Hampshire 4
Alaska 5 New Jersey 12
Arizona 14 New Mexico 10
California 78 New York 26
Colorado 8 North Carolina 37
Connecticut 9 North Dakota 10
Florida 4 Oregon 9
Georgia 36 Pennsylvania 18
Hawaii 4 South Carolina 11
Iowa 7 South Dakota 1
Kansas 10 Tennessee 1
Kentucky 1 Texas 6
Louisiana 1 Virginia 20
Maryland 3 Washington 3
Massachusetts 4 West Virginia 7
Minnesota 33 Wisconsin 4
Montana 2 Wyoming 1
Nevada 7
The Company's foreign vision centers in operation as of January 3,
1998 are located in the following countries:
Czech Republic and Slovakia 3
Mexico 26
The Company's home office is located in approximately 66,000 square feet
of space in Lawrenceville, Georgia, and is subleased from Wal-Mart through
the year 2001 (with an option to renew for approximately seven additional
years). The Company's central distribution center, an anti-reflective and
mirror coating facility, and a lens laboratory are located in the Company's
Lawrenceville headquarters.
The Company has regional headquarters located in St. Cloud, Minnesota,
which is subject to a lease with a term expiring on October 1, 2007. This
facility also contains a full-service optical laboratory.
The Company's Los Angeles laboratory is also held under lease, which
was cancelled effective February 1998. The Company has entered into a lease
(which expires in December 2002) for a successor facility in the Los Angeles
area.
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ITEM 3. LEGAL PROCEEDINGS
The Company is not currently a party to any legal proceedings the result
of which management believes could have a material adverse effect upon its
business or financial condition. The Company is currently the defendant
in a lawsuit (Commercial Court of Paris, Case No. RG 95 108253) in France
arising out of the Company's sale of its French operations. The suit was
initiated on December 6, 1995 by Grand Optical Photoservice, S.A. ("GPS")
to block the Company's sale of its French operations to a third party. GPS
claims that, in selling its French operations to a third party, the Company
breached a letter of intent it had previously signed with GPS. By a decision
dated December 14, 1995, the trial court rejected the plaintiff's claims
and fined the plaintiff for filing a frivolous claim. The plaintiff has
filed an appeal. The Company believes that the plaintiff's claims are
without merit.
The Company received, with respect to the 1992 tax year, a deficiency
notice (dated September 11, 1996) from the Internal Revenue Service ("IRS")
asserting, among other claims, that the Company was not entitled to a certain
deduction in the amount of $4,353,367 (relating to the exercise of certain
stock options - see Note 5 to consolidated financial statements). The Company
vigorously disputes these allegations. Through its counsel, the Company
filed a petition in October 1996 in the U.S. Tax Court (Docket No. 23670-96),
contesting the deficiency notice. Subject to the execution of definitive
settlement documents, the Company and the IRS have agreed to settle the
litigation. The settlement would provide that the Company receive
substantially all of the deduction it seeks. (See Notes 5, 9, and 16 to
consolidated financial statements.)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the last
quarter of fiscal 1997.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the NASDAQ National Market System
under the symbol "NVAL".
The following table sets forth for the periods indicated the high and low
closing prices of the Company's Common Stock in the over-the-counter market on
the NASDAQ National Market System.
<TABLE>
<CAPTION>
Quarter Ended High Low
------------- ---- ---
<S> <C> <C>
1996 March 30 $3.625 $2.50
June 29 $5.125 $3.00
September 28 $5.125 $4.00
December 28 $4.563 $3.25
1997 March 29 $5.500 $3.875
June 28 $5.250 $4.250
September 27 $5.250 $4.063
1998 January 3 $6.125 $5.125
</TABLE>
As of January 3, 1998, there were approximately 630 holders of record
of the Company's Common Stock.
It is the present intention of the Company's board of directors not
to pay dividends but rather to use the Company's cash resources for the
expansion of its operations, acquisitions and repayment of the Company's
revolving credit facility. Future dividend policy will depend upon the
earnings and financial condition of the Company, the Company's need for
funds, and other factors.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data of the Company with respect to
the consolidated financial statements for the years ended December 31,
1993, 1994, December 30, 1995, December 28, 1996 and January 3, 1998 is
derived from the Company's consolidated financial statements. The selected
financial data set forth below should be read in conjunction with the
consolidated financial statements and notes thereto included elsewhere
herein. For information on dispositions of certain business operations,
see Note 14 to consolidated financial statements.
<TABLE>
<CAPTION>
1993 1994 (1) 1995 (2) 1996 (2) 1997 (2)(6)
---- -------- -------- ---- ----
(000's except per share information and statistical data)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net Sales $88,340 $119,395 $145,573 $160,376 $186,354
Cost of Goods Sold 41,445 53,898 67,966 76,692 86,363
------- -------- -------- -------- --------
Gross Profit 46,895 65,497 77,607 83,684 99,991
Gross Profit Percentage 53% 55% 53% 52% 54%
Selling, General, and Administrative
Expenses 48,602 63,911 74,390 76,920 89,156
Provision for Dispositions (3) 7,727 -- 958 -- --
Other Nonrecurring Charges (3) 2,750 -- 1,053 -- --
Stock Compensation Expense (3) 834 -- -- -- --
------- -------- -------- -------- --------
Operating Income (Loss) (13,018) 1,586 1,206 6,764 10,835
Other Income (Expense), Net 154 (1,195) (2,626) (2,084) (1,554)
------- -------- -------- -------- --------
Income (Loss) Before Income Taxes (12,864) 391 (1,420) 4,680 9,281
Income Tax Benefit (Expense) 900 (40) (100) (1,200) (3,708)
------- -------- -------- -------- --------
Net Income (Loss) $(11,964) $ 351 $ (1,520) $ 3,480 $ 5,573
======== ======== ======== ======== ========
Basic Earnings (Loss) Per Common Share (4) $ (.59) $ .02 $ (.07) $ .17 $ .27
======== ======== ======== ======== ========
Diluted Earnings (Loss) Per Common Share (4) $ (.59) $ .02 $ (.07) $ .17 $ .27
======== ======== ======== ======== ========
Earnings (Loss) before Interest, Taxes, $ (7,506) $ 9,153 $ 11,584 $ 16,922 $ 21,870
Depreciation and Amortization
As a Percentage of Sales (8.5%) 7.7% 8.0% 10.6% 11.7%
STATISTICAL DATA (UNAUDITED):
Domestic Vision Centers Open at
End of Period 186 261 319 320 443
Mexico and Eastern Europe Vision
Centers Open at End of Period 19 30 26 21 29
Average Weekly Consolidated Sales
Per Vision Center (5) $10,200 $ 9,500 $8,700 $9,300 $9,400
Average Weekly Sales Per Domestic
Vision Center (5) $11,000 $10,100 $9,100 $9,600 $9,800
Average Weekly Sales Per Vision Center
in Mexico (5) $ 6,800 $ 4,100 $2,900 $2,700 $2,700
</TABLE>
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<TABLE>
<CAPTION>
1993 1994(1) 1995(2) 1996 (2) 1997 (2)(6)
---- ------- ------- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working Capital $ 6,954 $ 8,723 $14,556 $13,502 $12,171
Total Assets 66,172 77,612 81,237 74,564 83,250
Long-Term Debt and Capital Lease
Obligations 15,135 30,479 38,000 26,500 23,725
Shareholders' Equity 31,577 29,613 26,326 29,906 36,368
Long-Term Debt and Lease Obligations
as a Percentage of Shareholders'
Equity 48% 103% 144% 89% 65%
</TABLE>
(1) Financial information for 1994 includes results of international
operations for the 11 months ended November 30, 1994.
(2) Financial information for 1995 and subsequent years include results
of international operations for the 12 months ended November 30.
See Note 2 to consolidated financial statements.
(3) In 1995, the Company decided to dispose of its non-core business
operations, resulting in a $2 million provision. See Note 14 to
consolidated financial statements. In 1993, the Company recorded
provisions for nonrecurring charges related to the disposition of
the Canada business, termination of a proposed acquisition of a
frame manufacturer, write off of capitalized costs for a point of
sale system, and compensation expense associated with certain stock
options granted to employees of the Company.
(4) In 1997, the Company adopted SFAS No. 128, "Earnings per Share".
Basic earnings per common share were computed by dividing net
income by the weighted average number of common shares outstanding
during the year. Diluted earnings per common share were computed
as basic earnings per common share, adjusted for outstanding stock
options that are dilutive. Outstanding options with an exercise
price below the average price of the Company's common stock have
been included in the computation of diluted earnings per common
share, using the treasury stock method, as of the date of the grant.
Stock options have been excluded from the calculation of weighted
average shares outstanding during 1993 and 1995, as the effect would
be antidilutive. All earnings per share calculations for 1993
through 1996 have been restated to conform with SFAS No. 128.
(5) Calculated from sales from each month during the period divided by
the number of store weeks of sales during the period, excluding
stores not open a full month.
(6) Effective January 1, 1995, the Company changed its year end to a
52/53 week retail calendar (see Note 2 to consolidated financial
statements). Fiscal 1997 consisted of 53 weeks ended January 3,
1998. Sales for the 53rd week approximated $3.0 million in
fiscal 1997.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
- ---------------------
The Company's results of operations in any period are significantly
affected by the number of vision centers opened and operating during such
period. Given the Company's rapid expansion to 443 vision centers at
January 3, 1998, and dispositions of significant operating units (both
domestic and foreign), period-to-period comparisons may not be meaningful
and the results of operations for historical periods may not be indicative
of future results.
Effective January 1, 1995, the Company changed its year end to a more
standard 52/53 week retail calendar with the fiscal year ending on the
Saturday closest to December 31. Fiscal 1997 consisted of 53 weeks. Sales
for the 53rd week approximated $3.0 million in fiscal 1997. International
operations are reported using a fiscal year ended November 30. (See Note 2
to consolidated financial statements.)
Year Ended January 3, 1998 ("fiscal 1997") Compared to
Year Ended December 28, 1996 ("fiscal 1996")
- ------------------------------------------------------
Consolidated Results
- --------------------
NET SALES. Net sales during fiscal 1997 increased to $186.4 million
from $160.4 million for the prior year. Such increase was due to a 6.8%
increase in comparable store sales for domestic vision centers as well as
an increase in the number of domestic vision centers. Consolidated average
weekly net sales per vision center increased 1.1% from $9,300 during fiscal
1996 to $9,400 during fiscal 1997. Such improvement was due primarily to
the increase in comparable store sales on the domestic business, offset in
part by the acquisition in the fourth quarter of 1997 of Midwest Vision,
Inc., a 51 unit retail optical company with annual sales in 1997 of
approximately $14.4 million. Average weekly net sales for vision centers
open less than one year were lower than the average for vision centers
open less than one year in fiscal 1996.
Continued success of "life style" selling programs, improved
merchandising and product presentation, as well as continued focus on
customer service, contributed to the sales improvement. In stores open
for more than one year, average spectacle unit sales per week and the
average spectacle transaction value increased over that attained in fiscal
1996. In addition, sales under managed care programs increased from the
prior year.
Net sales from international operations increased from $3.8 million
in the 12-month period ending November 30, 1996 to $4.0 million in the
comparable period ending November 30, 1997. The increase is attributable
primarily to new store openings.
GROSS PROFIT. For fiscal 1997, gross profit increased to $100.0
million from $83.7 million in the prior year. This increase was due
to the increase in net sales described above. Gross profit percentage
increased from 52.2% in 1996 to 53.7% in 1997. Gross profit percentage
was positively affected primarily by increased receipts of occupancy fees
from independent optometrists as a result of the ELI and SPI transactions
which closed in January 1997 (see Note 3 to consolidated financial
statements). Additionally, the Company's focus on lifestyle selling
contributed to the improvement in gross profit percentage.
Page 15 of 56<PAGE>
<PAGE>
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES ("SG&A expense").
SG&A expense (which includes both store operating expenses and home
office overhead) increased to $89.2 million in fiscal 1997 from
$77.0 million in 1996. As a percentage of net sales, SG&A expense was
47.8% in 1997, compared to 48.0% for 1996. The decrease was due primarily
to improved efficiencies at store level partially offset by increases in
administrative expenses related to responsibilities assumed in connection
with the ELI and SPI transactions which closed in January 1997 and transition
costs resulting from the acquisition of Midwest Vision, Inc. (See Notes 3
and 4 to consolidated financial statements.)
OPERATING INCOME. Operating income for fiscal 1997 increased to
$10.8 million from $6.8 million in 1996 representing an increase in
operating margin from 4.2% in 1996 to 5.8% in 1997. In addition, the
Company's international operations (29 vision centers at November 30,
1997) generated an operating loss of $28,000 in fiscal 1997, as opposed
to an operating loss of $612,000 in the comparable period a year ago.
International operating results do not include allocated corporate
overhead, interest, and taxes.
OTHER EXPENSE. The decrease in other expense to $1.6 million,
compared to $2.1 million in 1996, is due, for the most part, to
reduced interest expense, resulting from the reduction of outstanding
borrowings under the Company's credit facility. (See Note 11 to
consolidated financial statements.)
PROVISION FOR INCOME TAXES. The effective income tax rate on
consolidated pre-tax income is 40%, which represents a tax provision
of 39% on domestic earnings. Due to the Company's tax net operating
loss carryforward position, current year earnings will not be subject
to regular Federal Income Tax. However, the Company will be subject
to Federal Alternative Minimum Tax and state income tax, which will
result in the Company making cash payments approximating 24% of
consolidated pre-tax earnings. In 1998, the Company anticipates
making cash payments for Federal and State income taxes approximating
27% of consolidated pre-tax earnings.
NET INCOME. Net income was $5.6 million, or $0.27 per share, as
compared to net income of $3.5 million, or $0.17 per share, in 1996.
The increase in net income of $2.1 million over fiscal 1996 represents a
60% increase in net income on a sales increase of 16%.
Year Ended December 28, 1996 Compared to Year Ended December 30, 1995
- ---------------------------------------------------------------------
Consolidated Results
- --------------------
NET SALES. 1996 net sales increased to $160.4 million from $145.6
million for 1995, due to the net effect of the following: (a) an increase
in the number of domestic vision centers; (b) a 4% increase in comparable
sales for domestic vision centers (those open for at least one year); and
(c) a reduction in revenues resulting from the disposition and closure
of businesses in the fourth quarter 1995 and the first quarter 1996.
Consolidated average weekly net sales per vision center increased from
approximately $8,700 in 1995 to $9,300 in 1996 due primarily to the
disposition of underperforming vision centers in certain domestic operations
and Mexican operations. The improvement in average weekly net sales for
comparable domestic stores was partially offset by a reduction in average
weekly net sales for vision centers opened in 1996.
Page 16 of 56<PAGE>
<PAGE>
In the first quarter of 1996, the Company implemented a new merchandising
program for spectacles. Initially, the new program served to increase the
average number of sales transactions per vision center (market share)
over the prior year, but at a lower dollar value per transaction. The
Company experienced an increase in average number of transactions per
vision center for the remainder of the year. In the latter part of 1996,
the average transaction value increased. For the year, the improvement
in sales resulting from market share increases more than offset the effect
on sales resulting from the decline in the average transaction value.
Consistent with the trend experienced in 1994 and 1995, average
weekly sales volumes for new domestic vision centers opened in 1996 were
lower than vision centers opened in the previous year. The effect of
lower new store results in 1996, which had a negative impact on consolidated
average weekly sales, was offset by an increase in average weekly sales
for stores opened in 1995 and 1994.
GROSS PROFIT. Gross profit in 1996 increased to $83.7 million from
$77.6 million in 1995, primarily because of increased net sales. Gross
profit as a percentage of sales declined from 53.3% in 1995 to 52.2% in
1996. The Company maintained margins from product sales at store level,
but margins were negatively affected by a reduction in promotional
monies from vendors (because of fewer store openings) and increased
freight costs related to the reset of store inventory planograms.
SELLING, GENERAL, AND ADMINISTRATIVE ("SG&A") EXPENSES. SG&A expenses
(which include both vision center operating expenses and home office
overhead) increased to $77.0 million in 1996 from $74.4 million in 1995,
reflecting the addition of new vision centers in 1996. Average weekly
store expense per vision center remained constant. As a percentage of
sales, SG&A expenses decreased from 51.1% in 1995 to 48.0% in 1996. The
decrease was attributable to comparable store sales increases achieved
during 1996 and to continued improved efficiencies in the operation of
administrative offices.
OTHER EXPENSE. Other expense decreased from $2.6 million in 1995
to $2.1 million in 1996 due to a decrease in average borrowings by the
Company under its credit facility, in addition to a reduction in the
effective interest rate paid by the Company in 1996 versus 1995.
PROVISION FOR INCOME TAXES. The effective income tax rate in 1996
was 26%. In light of the disposition of the unprofitable Venture domestic
operations in the first quarter of 1996 (see Note 14 to consolidated
financial statements), the Company reassessed the realizability of
domestic net operating loss carryforwards and accordingly reduced the
valuation allowance in 1996.
NET INCOME. In 1996, the Company achieved net income of $3.5 million,
or $0.17 per share, as compared to a net loss of $1.5 million, or $0.07
per share in 1995. Results of operations for 1995 included charges
approximating $2 million. (See Note 14 to consolidated financial
statements.)
Page 17 of 56<PAGE>
<PAGE>
International Results in Fiscal 1996
- ------------------------------------
At November 30, 1996, the Company operated 21 vision centers
internationally versus 36 vision centers at November 30, 1995. International
locations included 18 in Mexico and two and one in the Czech Republic
and Slovakia, respectively. Financial results for international operations
during 1996 are based on the 12 months ended November 30. (See Note 2 to
consolidated financial statements.)
NET INTERNATIONAL SALES. Net international sales for the 12 months
ended November 30, 1996 were $3.8 million, a decrease from $8.9 million
during the 12 months ended November 30, 1995. Such decrease was principally
due to closure of vision centers in France and in Mexico.
GROSS PROFIT. Gross profit decreased to $1.6 million from $4.4 million
in 1995, primarily the result of the decreased sales. Gross profit as a
percentage of sales declined from 49% in 1995 to 43% in 1996, due primarily
to the effect of selling the French operation, which realized a higher gross
profit percentage than the average for the international business.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES EXCLUDING INTERCOMPANY
ALLOCATIONS. SG&A expense decreased from $5.8 million for the 12 months
ended 1995 to $2.0 million for the 12 months ended November 30, 1996, as
a result of the dispositions mentioned above. SG&A expense as a percentage
of sales decreased to 53% for the 12 months ended November 30,
1996 from 65% of sales for the 12 months ended November 30, 1995. Reductions
in selected expenses at store level coupled with favorable leveraging of
administrative expense reduced SG&A expense as a percentage of sales.
OPERATING LOSS. The operating loss for international operations does not
include allocated corporate overhead, interest or taxes. International
operations generated a net operating loss of $612,000 in the 12 months ended
November 30, 1996, as opposed to net operating loss of $1.3 million in the
12 months ended November 30, 1995. Mexican operations generated an operating
loss of $294,000 in the 12 months ended November 30, 1996.
Inflation
- ---------
Although the Company cannot determine the precise effects of inflation,
it does not believe inflation has had a material effect on its domestic
sales or results of operations. The Company cannot determine whether
inflation will have a material long-term effect on its sales or results of
operations. Continued inflation in Mexico may cause consumers to reduce
discretionary purchases such as eyeglasses.
As a result of inflation in prior years, the Company has in the past
adjusted its retail pricing. Further pricing adjustments are contingent
upon competitive pricing levels in the marketplace. Management is monitoring
the continuing impact of these inflationary trends.
Page 18 of 56<PAGE>
<PAGE>
Liquidity and Capital Resources
- -------------------------------
In July 1997, the Company entered into a two-year $45 million revolving
credit facility syndicated by a major regional bank. The Company's credit
facility contains, among other covenants, a material adverse change clause
and certain minimum net worth and other requirements. As of January 3, 1998,
the Company had borrowed $19.5 million under its credit facility versus
outstanding borrowings of $26.5 million as of December 28, 1996.
During 1997, store openings and other capital requirements as well as
the acquisition of Midwest Vision, Inc. were funded through internal cash
flow. The acquisition of Midwest Vision, Inc. included a cash payment of
$1.9 million, issuance of a debt instrument in the principal amount of
$620,000 payable over five years, and issuance of 110,795 shares of common
stock. Additionally, the Company made cash payments of $239,000 related to
investment advisory fees and other costs directly related to the acquisition.
Subsequent to the close date, the Company paid off long-term debt of $1.4
million assumed in the transaction.
The Company issued unsecured promissory notes relative to various
transactions completed with ELI and SPI and to the Midwest Vision acquisition.
(See Notes 3 and 4 to consolidated financial statements.) The notes are
fixed rate instruments, with rates ranging from 6.4% to 8.5%. The promissory
notes with ELI and SPI require quarterly payments through January 2009
whereas the Midwest Vision note requires monthly payments through October
2002. The fair market value of the promissory notes are approximately
$80,000 less than book value at January 3, 1998.
The Company has entered into rate swap agreements which effectively
convert underlying variable rate debt based on LIBOR to fixed rate debt.
The agreements extend through February 20, 2000. The notional principal
amount on one agreement is $20 million, with an effective fixed rate of
6.93%, which will expire on February 20, 1998. At that date, two separate
agreements will commence with an aggregate notional principal amount of
$10 million and an effective fixed rate which averages 7.52%. At January 3,
1998, the fair market value of the fixed rate hedges approximates book
value. Under existing accounting standards, this activity is accounted
for as a hedging activity. The swaps are settled every 90 days.
The Company maintains an unsecured line of credit agreement with a
financial institution which, at the discretion of the lender, allows the
Company to borrow up to $5 million. The agreement is available to fund
financing needs on a short-term basis at a variable interest rate, determined
by the lender. As of year-end, there were no borrowings outstanding under
the agreement.
As of January 3, 1998, the Company plans to open (exclusive of any
vision centers obtained through acquisitions) approximately 35 domestic
and approximately 6 Mexican vision centers during 1998. Consistent with
prior years, the number of ultimate openings is dependant on the
construction schedules of the host store. In fiscal 1998, the Company
has a goal to attain an approximate 20% increase in store growth through
new store openings in existing businesses and through acquisitions. The
Company's ability to attain such goal will depend upon the risk factors
described below. Average costs for opening domestic vision centers have
approximated $140,000 for fixed assets and $35,000 for inventory. The Company
incurs approximately $20,000 for preopening expenses for each opening of a
domestic vision center. Prior to 1998, such costs were capitalized and
amortized over 12 months. Effective in 1998, such costs will be expensed as
incurred in accordance with proposed AICPA Statement of Position, "Reporting
Page 19 of 56<PAGE>
<PAGE>
on the Costs of Start-Up Activities". Capital for leasehold improvements and
other fixed assets in Mexican vision centers should approximate $75,000
per vision center.
At January 3, 1998, the Company had borrowed $19.5 million under its
credit facility. The Company anticipates that internally generated funds, as
well as funds available under the Company's revolving credit facility, will
be sufficient to fund ongoing operating costs associated with its current
vision centers, vision centers currently scheduled to be opened during
1998, and any vision centers which may be acquired by the Company during 1998.
Year 2000 Compliance
- --------------------
The majority of the Company's internal information systems are currently
Year 2000 compliant or in the process of being replaced with fully-compliant
new systems. The Company has identified approximately 220 point of sale
systems that require hardware upgrades to be year 2000 compliant. The total
cost of software changes, hardware changes, and implementation is estimated
to be approximately $650,000. Costs related to hardware and new software
purchases will be capitalized as incurred and amortized over three years.
These new system modifications are expected to be completed in the second half
of 1999.
The Company is in the process of developing an enhanced point of sale
software system which is scheduled to be in the retail stores by the fourth
quarter of 1999. The primary purpose of the system is to upgrade data
processing, broaden in-store capabilities, and improve the accuracy of
processing managed care sales transactions. In addition to the above
improvements, the system will be designed to be Year 2000 compliant.
Some of the Company's vendors, financial institutions, and managed care
organizations utilize equipment to capture and transmit transactions. The
Company is in the process of coordinating its Year 2000 compliance efforts
with those of such organizations. The estimated future cost of this
transition is minimal. No assurance can be given that such organizations
will make their systems Year 2000 compliant.
The Company will utilize both internal and external resources to
reprogram, or replace, and test software for Year 2000 compliance. The costs
of the Year 2000 project and the date on which the Company plans to complete
Year 2000 modifications are based on management's best estimates, which
were derived utilizing numerous assumptions of future events including the
continued availability of certain resources, third party modification plans
and other factors. However, there can be no guarantee that these estimates
will be realized and actual results could differ materially from those plans.
Derivative Financial Instruments
- --------------------------------
MARKET RISK. Market risk is the potential change in an instrument's
value caused by, for example, fluctuations in interest and currency exchange
rates. The Company's primary market risk exposures are interest rate risk
and the risk of unfavorable movements in exchange rates between the U.S.
dollar and the Mexican peso. Monitoring and managing these risks is a
continual process carried out by senior management, which reviews and
approves the Company's risk management policies. Market risk is managed
based on an ongoing assessment of trends in interest rates, foreign exchange
rates, and economic developments, giving consideration to possible effects
on both total return and reported earnings. The Company's financial
advisors, both internal and external, provide ongoing advice regarding
trends that affect management's assessment.
Page 20 of 56<PAGE>
<PAGE>
INTEREST RATE RISK. The Company holds long-term debt on a revolving
credit facility with variable interest rates indexed to LIBOR which exposes
it to the risk of increased interest costs if interest rates rise. To
reduce the risk related to unfavorable interest rate movements, the Company
enters into interest rate swap contracts to pay a fixed rate and receive a
variable rate that is indexed to LIBOR. The ratio of the swap notional
amount to the principal amount of variable rate debt issued changes
periodically based on management's ongoing assessment of the future trend
in interest rate movements. The Company's financial advisors, both internal
and external, provide ongoing advice regarding trends that affect management's
assessment. The notional amount of fixed interest rate swaps in place at
January 3, 1998 represents approximately 100 percent of the Company's
variable rate debt and will change to approximately 50% on February 20, 1998.
FOREIGN EXCHANGE RATE RISK. The Securities and Exchange Commission
has qualified Mexico as a highly inflationary economy under the provisions
of SFAS No. 52 - Foreign Currency Translation. Consequently, in 1997, the
financial statements of the Mexico operation were remeasured with the U.S.
dollar as the functional currency. During 1997, an immaterial loss resulted
from changes in foreign currency rates between the peso and the U.S. dollar,
as calculated in the remeasurement process, and was recorded in the Company's
statement of operations. Continued increases in the conversion rate for the
peso will generate further losses in future years. The Company has pursued
the purchase of a foreign currency hedge to mitigate the possible financial
loss resulting from unfavorable movements in the peso; however, due to the
unstable market conditions relative to the peso, it is management's conclusion
that the cost to acquire a hedge exceeds the financial loss that may occur
given current predictions by the Company's external financial advisors as
to the peso conversion rate at fiscal year end 1998. The conversion rate
was 8.2 at fiscal year end 1997. If the conversion rate moves to 10 at year
end 1998, the loss to the Company would approximate $60,000. The Company
will continue to explore options to reduce this financial risk.
Option to Extend License Agreement
- ----------------------------------
The Company's agreement with Wal-Mart provides for a nine-year base term and
a three-year option for each vision center, with the base term beginning on
the date of opening. The Company opened six vision centers in 1990 under its
agreement with Wal-Mart and 54 such vision centers in 1991, with additional
vision centers being opened in subsequent years. Accordingly, beginning in
1999, the Company will determine whether to exercise options to extend the
licenses for such vision centers. The Company will make such decisions based
upon various factors, including, without limitation, the sales levels of each
vision center, its estimated future profitability, increased minimum license
fees charged by Wal-Mart during the option period, and other relevant factors.
Each option must be exercised at least six months prior to the expiration of
the license for each vision center. Although the Company expects that it will
extend the licenses of a substantial majority of these vision centers, no
assurance can be given as to the number of vision centers the licenses of
which will be extended.
Page 21 of 56<PAGE>
<PAGE>
Risk Factors
- ------------
Any expectations, beliefs, and other non-historical statements contained
in this 10-K are forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements made in
this Form 10-K concern the following matters: planned development of software
systems; planned opening of vision centers; expected exercise of options under
the Wal-Mart Agreement; potential future acquisitions; funding of expansion
through internal cash flow; and anticipated reduction of borrowings under the
Company's credit facility. With respect to such forward-looking statements
and others which may be made by, or on behalf of, the Company, the following
factors could materially affect the Company's actual results:
- - The Company's relationship with its host stores, including the Company's
dependence on Wal-Mart for its current and continued operations.
- - Operating factors affecting customer satisfaction and quality controls of
the Company in optical manufacturing.
- - The Company's ability to identify potential acquisition targets and to
consummate acquisitions on acceptable terms and conditions.
- - Risks associated with the acquisition and integration of any acquired
operations.
- - The Company's ability to obtain and retain managed care contracts and
business. Management expects that managed care arrangements will become
increasingly important in the optical industry.
- - The Company's ongoing ability to generate continued sales and
contribution improvement at its vision centers operated under the Wal-Mart
Agreement, so as to justify the exercise of options to extend the licenses
of vision centers.
- - Pricing and other competitive factors.
- - The mix of goods sold.
- - Availability of optical and optometric professionals. An element of the
Company's business strategy and a requirement of the Wal-Mart Agreement is
the availability of vision care professionals at clinics in or nearby the
Company's vision centers.
- - State and federal regulation of managed care and of the practice of
optometry and opticianry.
- - The Company's ability to timely develop a new point of sale system.
- - General risks arising from investing and operating in Mexico, including
a different regulatory, political, and governmental environment, currency
fluctuations, high inflation, price controls, restrictions on profit
repatriation, lower per capita income and spending levels, import duties,
value added taxes, and difficulties in cross-cultural marketing.
- - The Company's ability to select in-stock merchandise attractive to
customers.
- - Weather affecting retail operations.
Page 22 of 56<PAGE>
<PAGE>
- - Variations in the level of economic activity affecting employment and
income levels of consumers.
- - Seasonality of the Company's business.
Recent Accounting Pronouncements
- --------------------------------
Effective in 1997, the Company adopted Statement of Financial Accounting
Standards No. 128 ("SFAS 128") "Earnings per Share" and No. 129 ("SFAS 129")
"Disclosure of Information and Capital Structure." SFAS 128 simplifies the
calculation of basic earnings per common share and diluted earnings per
common share. Additionally, disclosure is required presenting a
reconciliation of the computations for basic and diluted earnings per common
share. The change in calculations did not change the Company's reported
earnings per common share amounts presented in previously filed 10-K's or
quarterly reports filed in 10-Q's. SFAS 129 requires disclosure of the
pertinent rights and privileges of all securities other than ordinary
common stock. The Company has disclosed such information in previous years'
annual reports filed on Form 10-K.
Effective in 1997, the Company adopted Statement of Financial Accounting
Standard No. 131 ("SFAS 131"), "Disclosures about Segments of an Enterprise
and Related Information". The statement addresses reporting of segment
information. (See Note 15 of Notes to Consolidated Financial Statements.)
In July 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income". The statement addresses the reporting and display of changes in
equity that result from transactions and other economic events, excluding
transactions with owners. Management does not believe the adoption of
SFAS No. 130 will not have a material impact on the Company's financial
statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of the Company are included as a
separate section of this Report commencing on page 28.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no disagreements with accountants on accounting and
financial disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The section entitled "Election of Directors" contained in the definitive
proxy statement to holders of the Company's Common Stock in connection with
the solicitation of proxies to be used in voting at the 1998 Annual Meeting
of Shareholders is hereby incorporated by reference for the purpose of
providing information about the identification of directors.
ITEM 11. EXECUTIVE COMPENSATION
The section entitled "Compensation of Executive Officers" contained in
the definitive proxy statement to holders of the Company's Common Stock in
connection with the solicitation of proxies to be used in voting at the
1998 Annual Meeting of Shareholders is hereby incorporated by reference
for the purpose of providing information about executive compensation.
Page 23 of 56<PAGE>
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section entitled "Common Stock Ownership of Certain Beneficial
Owners and Management" contained in the definitive proxy statement to
holders of the Company's Common Stock in connection with the solicitation
of proxies to be used in voting at the 1998 Annual Meeting of Shareholders
is hereby incorporated by reference for the purpose of providing information
about security ownership of certain beneficial owners and management.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section entitled "Compensation Committee Interlocks and Insider
Participation" contained in the definitive proxy statement to holders of
the Company's Common Stock in connection with the solicitation of proxies
to be used in voting at the 1998 Annual Meeting of Shareholders is hereby
incorporated by reference for the purpose of providing information about
transactions with management and others and certain business relationships.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) and (2) The Consolidated Financial Statements and Schedule of
the Company and its subsidiaries are filed herewith as a separate section
of this Report commencing on page 28.
(3) The following exhibits are filed herewith or incorporated by
reference:
Exhibit
Number
3.2a -- Amended and Restated By-Laws of the Company.
4.1b -- Form of Common Stock Certificate.
4.2c -- Amended and Restated Articles of Incorporation of the
Company.
4.5b -- Rights Agreement dated as of January 17, 1997 between
the Company and Wachovia Bank of North Carolina, N.A.
10.7a -- Sublease Agreement, dated December 16, 1991, by and
between Wal-Mart Stores, Inc. and the Company.
10.17d -- Form indemnification agreement for directors and
certain executive officers of the Company.
10.24e++ -- Employment Agreement of Sandra M. Buffa, dated as of
June 15, 1993.
10.34f -- Vision Center Master License Agreement, dated as of
June 16, 1994, by and between Wal-Mart Stores, Inc. and
the Company. [Portions of Exhibit 10.34 have been
omitted pursuant to an order for confidential treatment
granted by the Commission. The omitted portions have
been filed separately with the Commission.]
Page 24 of 56<PAGE>
<PAGE>
Exhibit
Number
10.37g++ -- Split Dollar Life Insurance Agreement, dated as of
November 3, 1994, among the Company, A. Kimbrough Davis,
as Trustee, and James W. Krause.
10.39g++ -- Level IV Management Incentive Plan.
10.46h -- Agreement dated as of November 23, 1995 by and between
Mexican Vision Associates Operadora, S. de R.L. de C.V.
and Wal-Mart de Mexico, S.A. de C.V. in original Spanish
and an uncertified English translation. [Portions of
Exhibit 10.46 have been omitted pursuant to a request
for confidential treatment filed with the Commission.
The omitted portions have been filed separately with
the Commission.]
10.47i++ -- Executive Relocation Policy.
10.48j++ -- Restated Stock Option and Incentive Award Plan.
10.48.1k++ -- First Amendment to Restated Stock Option and Incentive
Award Plan.
10.49l++ -- Form Change in Control Agreement for certain executive
officers of the Company.
10.50l -- Agreement for Assignment of License Interests and Related
Matters dated as of November 1, 1996 by and among the
Company and other parties.
10.51k++ -- Form Restricted Stock Award.
10.52m++ -- Restated Non-Employee Director Stock Option Plan.
10.53n -- $45,000,000 Credit Agreement dated as of July 15, 1997
among the Company, Wachovia Bank, N.A., and certain
other banks.
10.54** -- Stock Purchase Agreement dated as of September 15, 1997
by and between the Company and Myrel Neumann, O.D.
10.55++** -- Executive Deferred Compensation Plan.
11** -- Statement Re: Computation of Net Income (Loss) Per Share.
21** -- Subsidiaries of the Registrant.
23** -- Consent by Arthur Andersen LLP.
27** -- Financial Data Schedule.
Page 25 of 56<PAGE>
<PAGE>
Exhibit
Number
a Incorporated by reference to the Company's Registration Statement
on Form S-1, registration number 33-46645, filed with the Commission
on March 25, 1992, and amendments thereto.
b Incorporated by reference to the Company's Registration Statement
on Form 8-A filed with the Commission on January 17, 1997.
c Incorporated by reference to the Company's Form 8-K filed with the
Commission on January 17, 1997.
d Incorporated by reference to the Company's Form 10-K for the fiscal
year ended December 31, 1992.
e Incorporated by reference to the Company's Form 10-Q for the
quarterly period ended September 30, 1993.
f Incorporated by reference to the Company's Form 10-Q for the
quarterly period ended September 30, 1994.
g Incorporated by reference to the Company's Form 10-K for the
fiscal year ended December 31, 1994.
h Incorporated by reference to the Company's Form 10-K for the
fiscal year ended December 30, 1995.
i Incorporated by reference to the Company's Form 10-Q for the
quarterly period ended March 30, 1996.
j Incorporated by reference to the Company's Form 10-Q for the
quarterly period ended June 29, 1996.
k Incorporated by reference to the Company's Form 10-Q for the
quarterly period ended March 29, 1997.
l Incorporated by reference to the Company's Form 10-K for the
year ended December 28, 1996.
m Incorporated by reference to the Company's Form 10-Q filed on
June 28, 1997.
n Incorporated by reference to the Company's Form 10-Q for the
quarterly period ended September 27, 1997.
** Filed with this Form 10-K.
++ Management contract or compensatory plan or arrangement in which
a director or named executive officer participates.
(b) No reports on Form 8-K have been filed during October,
November, or December, 1997.
Page 26 of 56<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
NATIONAL VISION ASSOCIATES, LTD.
By: /s/James W. Krause
James W. Krause
Chairman of the Board,
President and Chief Executive
Officer and Director
Date: February 17, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant on February 17, 1998, in the capacities indicated.
Signature Title
/s/
_____________________________
James W. Krause Chairman of the Board, President
and Chief Executive Officer and Director
/s/
_____________________________
Sandra M. Buffa Senior Vice President, Finance and
Treasurer, and Director (Principal
Financial Officer)
/s/
_____________________________
Angus C. Morrison Vice President, Corporate Controller
(Principal Accounting Officer)
/s/
_____________________________
David I. Fuente Director
/s/
_____________________________
Ronald J. Green Director
/s/
_____________________________
Campbell B. Lanier, III Director
/s/
_____________________________
J. Smith Lanier, II Director
Page 27 of 56<PAGE>
<PAGE>
NATIONAL VISION ASSOCIATES, LTD. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
AS OF DECEMBER 30, 1995, DECEMBER 28, 1996, AND JANUARY 3, 1998
TOGETHER WITH
AUDITORS' REPORT
Page 28 of 56<PAGE>
<PAGE>
NATIONAL VISION ASSOCIATES, LTD. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
The following consolidated financial statements and schedule of the
registrant and its subsidiaries are submitted herewith in response to
Item 8 and Item 14(a)1 and to Item 14(a)2, respectively.
Page
____
Report of Independent Public Accountants 30
Consolidated Balance Sheets as of December 28, 1996 and
January 3, 1998 31
Consolidated Statements of Operations for the
Years Ended December 30, 1995, December 28, 1996 and
January 3, 1998 32
Consolidated Statements of Shareholders' Equity for
the Years Ended December 30, 1995, December 28, 1996 and
January 3, 1998 33
Consolidated Statements of Cash Flows for the Years Ended
December 30, 1995, December 28, 1996 and January 3, 1998 34
Notes to Consolidated Financial Statements and Schedule 35
Schedule II, Valuation and Qualifying Accounts 56
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions, are inapplicable, or have been
disclosed in the notes to consolidated financial statements and,
therefore, have been omitted.
Page 29 of 56<PAGE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of National Vision
Associates, Ltd. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of
NATIONAL VISION ASSOCIATES, LTD. (a Georgia corporation) AND SUBSIDIARIES
as of December 28, 1996 and January 3, 1998 and the related consolidated
statements of operations, shareholders' equity, and cash flows for the
three years in the period ended January 3, 1998. These financial statements
and the schedule referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of National
Vision Associates, Ltd. and subsidiaries as of December 28, 1996 and
January 3, 1998 and the results of their operations and their cash
flows for the three years in the period ended January 3, 1998 in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedule listed in the
index to consolidated financial statements is presented for purposes of
complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation
to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 17, 1998
Page 30 of 56<PAGE>
<PAGE>
<TABLE>
<CAPTION>
NATIONAL VISION ASSOCIATES, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 28, 1996 and January 3, 1998
(000's except share information)
1996 1997
____ ____
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,110 $ 2,559
Accounts receivable (net of allowance: 1996 - $353; 1997 - $762) 4,164 6,066
Inventories 23,970 23,271
Store preopening costs (net of accumulated amortization: 1996 - $605; 1997 - $712) 240 295
Other current assets 944 464
------- -------
Total current assets 30,428 32,655
------- -------
PROPERTY AND EQUIPMENT:
Equipment 38,573 44,070
Furniture and fixtures 17,136 20,366
Leasehold improvements 13,178 15,005
Construction in progress 1,669 893
------- -------
70,556 80,334
Less accumulated depreciation (27,206) (36,692)
------- -------
Net property and equipment 43,350 43,642
------- -------
OTHER ASSETS AND DEFERRED COSTS (net of accumulated amortization:
1996 - $729; 1997 - $846) 786 1,015
ASSIGNMENT AGREEMENT AND INTANGIBLE ASSETS (net of accumulated
amortization: 1997 - $733) 5,938
------- -------
$74,564 $83,250
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 8,283 $ 7,252
Accrued expenses and other current liabilities 8,643 12,754
Current portion long-term debt 478
------- -------
Total current liabilities 16,926 20,484
------- -------
REVOLVING CREDIT FACILITY - LONG TERM 26,500 19,500
LONG-TERM NOTES PAYABLE, LESS CURRENT PORTION 4,225
DEFERRED INCOME TAX LIABILITIES 1,232 2,673
<PAGE>
COMMITMENTS AND CONTINGENCIES (Note 8)
SHAREHOLDERS' EQUITY:
Preferred stock, $1 par value; 5,000,000 shares authorized, none issued -- --
Common stock, $.01 par value; 100,000,000 shares authorized,
20,644,752 and 20,819,955 shares issued and outstanding as
of December 28, 1996 and January 3, 1998, respectively 206 208
Additional paid-in capital 42,166 43,053
Retained deficit (8,393) (2,820)
Cumulative foreign currency translation (4,073) (4,073)
------- -------
Total shareholders' equity 29,906 36,368
------- -------
$74,564 $83,250
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
Page 31 of 56<PAGE>
<PAGE>
<TABLE>
<CAPTION>
NATIONAL VISION ASSOCIATES, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 30, 1995, December 28, 1996 and January 3, 1998
(000's except per share information)
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
NET SALES $145,573 $160,376 $186,354
COST OF GOODS SOLD 67,966 76,692 86,363
-------- -------- --------
GROSS PROFIT 77,607 83,684 99,991
SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES 74,390 76,920 89,156
PROVISION FOR DISPOSITION OF
ASSETS 958
OTHER NONRECURRING CHARGES 1,053
-------- -------- --------
OPERATING INCOME 1,206 6,764 10,835
-------- -------- --------
OTHER EXPENSE, NET 2,626 2,084 1,554
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES (1,420) 4,680 9,281
PROVISION FOR INCOME TAXES 100 1,200 3,708
-------- -------- --------
NET INCOME (LOSS) $ (1,520) $ 3,480 $ 5,573
======== ======== ========
BASIC EARNINGS (LOSS) PER COMMON SHARE $ (.07) $ .17 $ .27
======== ======== ========
DILUTED EARNINGS (LOSS) PER COMMON SHARE $ (.07) $ .17 $ .27
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
Page 32 of 56<PAGE>
<PAGE>
<TABLE>
<CAPTION>
NATIONAL VISION ASSOCIATES, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended December 30, 1995, December 28, 1996, and January 3, 1998
(000's except share information)
Additional Retained Cumulative
Common Stock Paid-In Earnings Translation
Shares Amount Capital (Deficit) Adjustments Total
------ ------ ---------- --------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994 20,510,402 $205 $42,133 $(10,353) $(2,372) $29,613
Exercise of stock options 76,103 1 14 15
Foreign Currency Translation (1,782) (1,782)
Net Loss (1,520) (1,520)
---------- ---- ------- -------- ------- -------
BALANCE, December 30, 1995 20,586,505 206 42,147 (11,873) (4,154) 26,326
Exercise of stock options 58,247 19 19
Foreign Currency Translation 81 81
Net Income 3,480 3,480
---------- ---- ------- -------- ------- -------
BALANCE, December 28, 1996 20,644,752 206 42,166 (8,393) (4,073) 29,906
Issuance of common stock 110,795 1 835 836
Restricted Stock 54,000 1 35 36
Exercise of stock options 10,408 17 17
Net Income 5,573 5,573
---------- ---- ------- -------- ------- -------
BALANCE, January 3, 1998 20,819,955 $208 $43,053 $ (2,820) $(4,073) $36,368
========== ==== ======= ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
Page 33 of 56<PAGE>
<PAGE>
<TABLE>
<CAPTION>
NATIONAL VISION ASSOCIATES, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 30, 1995, December 28, 1996 and January 3, 1998
(000's)
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (1,520) $ 3,480 $ 5,573
-------- ------- -------
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Provision for disposition of assets 958
Provision for other nonrecurring charges 1,053
Depreciation and amortization 10,378 10,058 11,035
Provision for Deferred Income Tax Expense 1,002 1,441
Other 29 91 268
Changes in operating assets and liabilities,
net of effects of acquisitions:
Receivables (701) 2,224 (875)
Inventories (2,467) (2,594) 2,031
Store preopening costs (1,288) (657) (643)
Other current assets (34) 67 612
Accounts payable, accrued expenses, and other
current liabilities (88) 725 1,245
-------- ------- -------
Total adjustments 7,840 10,916 15,114
-------- ------- -------
Net cash provided by operating activities 6,320 14,396 20,687
-------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (13,175) (2,713) (8,049)
Acquisition, net of cash acquired (1,772)
Payment for non-competition agreement (484)
Purchase of Assignment Agreement (500)
-------- ------- -------
Net cash used in investing activities (13,175) (2,713) (10,805)
-------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances on revolving credit facility 12,000 1,500 5,500
Repayments on revolving credit facility (4,000) (13,000) (12,500)
Repayments of notes payable and capital leases (471) (480) (1,450)
Proceeds from issuance of common stock 15 19 17
-------- -------- -------
Net cash provided by (used in) financing activities 7,544 (11,961) (8,433)
-------- -------- -------
Effect of foreign currency exchange rate changes (1,782) 81
-------- -------- -------
NET INCREASE (DECREASE) IN CASH (1,093) (197) 1,449
CASH, beginning of year 2,400 1,307 1,110
-------- -------- -------
CASH, end of year $ 1,307 $ 1,110 $ 2,559
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
Page 34 of 56<PAGE>
<PAGE>
NATIONAL VISION ASSOCIATES, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
December 30, 1995, December 28, 1996 and January 3, 1998
1. ORGANIZATION AND OPERATIONS
National Vision Associates, Ltd. (the "Company") is engaged in the
retail sale of optical goods and services, primarily in the United States
and Mexico. The Company is largely dependent on Wal-Mart Stores, Inc.
("Wal-Mart") for continued operation of current vision centers (see Note 3).
In October 1997, the Company acquired all the capital stock of Midwest
Vision, Inc., a retail optical company with 51 locations in Minnesota and
three adjoining states (see Note 4).
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. Effective
January 1, 1995, the Company changed its year end to a 52/53 week retail
calendar with the fiscal year ending on the Saturday closest to December 31.
Pursuant to such calendar, financial information for each of 1995 and 1996
is presented for the 52-week period ended December 30 and December 28,
respectively. Fiscal 1997 consisted of 53 weeks ended January 3, 1998.
Due to various statutory and other considerations, international operations
were not changed to this 52/53 week calendar. To allow for more timely
consolidation and reporting, international operations are reported using a
fiscal year ending November 30. Certain amounts in the December 28, 1996
and December 30, 1995 consolidated financial statements have been
reclassified to conform to the January 3, 1998 presentation.
Revenue Recognition
The Company recognizes revenues and the related costs from retail
sales when at least 50% of the payment has been received.
Cash and Cash Equivalents
The Company considers cash on hand, short-term cash investments, and
checks that have not been processed by financial institutions to be cash
and cash equivalents. The aggregate amount of outstanding checks not
processed at January 3, 1998 was $381,000 (at December 28, 1996 - $440,000).
The Company's policy is to maintain uninvested cash at minimal levels. Cash
includes cash equivalents which represent highly liquid investments with a
maturity of one month or less. The carrying amount approximates fair value.
The Company restricts investment of temporary cash investments to financial
institutions with high credit standing.
Page 35 of 56<PAGE>
<PAGE>
Inventories
Inventories are valued at the lower of weighted average cost or
market. Market represents the net realizable value.
Store Preopening Costs
Prior to 1998, preopening costs which were directly associated with
the opening of new vision centers have been capitalized and amortized using
the straight-line method over 12 months beginning with the commencement of
each vision center's operations. The average cost capitalized per vision
center approximated $20,000. Effective in 1998, preopening costs will be
expensed as incurred in accordance with proposed AICPA Statement of Position,
"Reporting on the Costs of Start-Up Activities".
Property and Equipment
Property and equipment are stated at cost. For financial reporting
purposes, depreciation is computed using the straight-line method over
the assets' estimated useful lives or terms of the related leases,
whichever is shorter. Accelerated depreciation methods are used for
income tax reporting purposes. For financial reporting purposes, the
useful lives used for computation of depreciation range from five to ten
years for equipment, from three to nine years for furniture and fixtures,
from three to six years for hardware and software related to information
systems processing, and nine years for leasehold improvements. At the
time property and equipment are retired, the cost and related accumulated
depreciation are removed from the accounts and any gain or loss is credited
or charged to income. Annually, the Company evaluates the net book value
of property and equipment for impairment. The evaluation is performed
for retail locations and compares its best estimate of future cash flows
with the net book value of the property and equipment. Maintenance and
repairs are charged to expense as incurred. Replacements and improvements
are capitalized.
Balance Sheet Financial Instruments: Fair Values
The carrying amount reported in the consolidated balance sheets for
cash, accounts receivable, accounts payable and short-term debt approximates
fair value because of the immediate or short-term maturity of these financial
instruments. The carrying amount reported for "Revolving Credit Facility-
Long-Term" approximates fair value because the underlying instrument is a
variable rate note that reprices frequently. The fair value of the
Company's fixed interest rate swap agreements and fixed rate debt is based
on estimates using standard pricing models that take into consideration
current interest rate market conditions supplied by independent financial
institutions.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade accounts
receivable. The risk is limited due to the large number of individuals
and entities comprising the Company's customer base.
Assignment Agreement and Intangible Assets
Assignment agreement and intangible assets represent the excess of the
cost of net assets acquired in certain contract transactions and business
combinations over their fair value. Such amounts are amortized over periods
ranging from 11 years to 15 years. The Company evaluates intangible assets
for impairment annually. In completing this evaluation, the Company compares
its best estimate of future cash flows with the carrying value of the
underlying asset.
Page 36 of 56<PAGE>
<PAGE>
Income Taxes
Deferred income taxes are recorded using current enacted tax laws
and rates. Deferred income taxes are provided for depreciation, store
preopening costs, organization costs, inventory basis differences, and
accrued expenses where there is a temporary difference in recording such
items for financial reporting and income tax reporting purposes.
Other Deferred Costs
Deferred costs represent capitalized assets resulting from contractual
obligations and are being amortized on a straight line basis over a period
of time not to exceed five years.
Advertising and Promotion Expense
Production costs of future media advertising and related promotion
campaigns are deferred until the advertising events occur. All other
advertising and promotion costs are expensed when incurred.
Other Income and Expense
Other income and expense represents net financing costs associated
with the Company's financing activities, including interest costs on
borrowings under the revolving credit facility and other notes payable,
loan commitment fees and amortization of interest rate hedge and swap
agreements, purchase discounts on invoice payments, interest income on
cash investments and for fiscal 1997, realized exchange gains or losses
resulting from foreign currency transactions.
Foreign Currency Translation
The financial statements of foreign subsidiaries are translated
into U.S. dollars in accordance with Statement of Financial Accounting
Standards No. 52 ("SFAS No. 52"). Translation adjustments, which result
from the process of translating foreign financial statements into U.S.
dollars, are accumulated as a separate component of shareholders' equity.
The Securities and Exchange Commission has classified Mexico as a highly
inflationary economy under the provisions of SFAS No. 52 for reporting periods
starting in 1997. Effective in 1997, the financial statements of the Company's
Mexico operations are remeasured with the U.S. dollar as the functional
currency. Any gain or loss is recorded in the Company's statement of
operations as other income and expense.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Page 37 of 56<PAGE>
<PAGE>
Derivatives Used in Risk Management Activities
As part of its risk management activities, the Company uses interest
rate swaps to modify the variable interest rate characteristics of long-term
debt on the revolving credit facility. The Company holds no other
derivatives or similar instruments. The derivative contracts are designated
as hedges when acquired. They are expected to be effective economic hedges
and have high correlation with the debt being hedged.
Interest rate swaps are accounted for using the accrual method, with
an adjustment to interest expense in the income statement. The Company
accounts for the swap by recording the offset of the swap into the Company's
accounts. The swaps are settled every 90 days. Realized gains and losses
from the early settlement or disposition of swap contracts are deferred on
the balance sheet and amortized to interest expense over the original term
of the swap agreement.
3. WAL-MART MASTER LICENSE AGREEMENT AND OTHER AGREEMENTS
Wal-Mart Agreement
In 1994, the Company and Wal-Mart replaced their original agreement with
a new master license agreement (the "Wal-Mart Agreement"), which increased
minimum and percentage license fees payable by the Company and also granted
the Company the opportunity to operate up to 400 vision centers in existing
and future Wal-Mart stores (357 vision centers were in operation at fiscal
year end 1997). In January 1995, the Company made a lump sum payment in
exchange for such opportunity. The payment is being amortized over the
initial term of the vision centers opened subsequent to January 1, 1995. In
1997, the Wal-Mart Agreement was amended to provide that Wal-Mart must, by
April 1, 2000, grant the Company the opportunity to operate 400 vision centers
under the Wal-Mart Agreement, and that, with one exception, all new vision
centers opened after 1997 will be located in California and North Carolina.
Each vision center covered by the Wal-Mart Agreement has a separate license.
Pursuant to the Wal-Mart Agreement, the term of each such license is nine
years with a renewable option for one additional three-year term. Percentage
license fees remain the same over the nine-year base term and three-year
option term, whereas minimum license fees increase during the three-year
option term.
Consulting and Management Agreement
Among other things, the Wal-Mart Agreement requires an independent,
licensed optometrist to practice adjacent to or near each of the Company's
vision centers for at least 48 hours per week. In 1990, the Company entered
into a long-term consulting and management service agreement, as amended,
with two companies (Eyecare Leasing, Inc. ("ELI") and Stewart-Phillips, Inc.
("SPI")) jointly owned by two shareholders to recruit such optometrists for
certain of its vision centers. Subject to applicable state regulations,
this agreement, among other things, required the Company to provide space
and certain equipment to the optometrists for which the optometrists pay
the Company an occupancy fee. In exchange for their services, ELI and SPI
received certain fees under the agreement. Net of the fees paid to ELI and
SPI, the Company received $2.5 million and $2.9 million pursuant to this
agreement during 1995 and 1996, respectively. The net payments offset
occupancy expense incurred by the Company. Occupancy expense is a
component of cost of goods sold.
Page 38 of 56<PAGE>
<PAGE>
In January 1997, the Company completed various transactions related to
its relationship with each of ELI and SPI. The transactions involved the
termination of such consulting agreement and transfer of the responsibilities
of ELI and SPI to a subsidiary of the Company. As a result of these
transactions, the Company acquired the right to the payments which otherwise
would have been made to ELI and SPI under the consulting agreement. In 1997,
the Company received occupancy fees of $4.0 million, which included $1.4
million which would have been paid to ELI and SPI if the consulting agreement
had been in effect during 1997. The aggregate cost of the transactions was
$4.6 million, which was capitalized as an intangible asset and is being
amortized over the remaining life of the original term of vision center
leases. The Company made a lump sum payment of $500,000 at closing and
entered into promissory obligations for the balance, payable over a 12-year
period at 6.4% interest.
Mexico Agreement
In 1994, the Company opened 8 vision centers in stores owned and
operated by Wal-Mart de Mexico, S.A. de C.V. ("Wal-Mart de Mexico"). In
1995, the Company completed the negotiation of a master license agreement
governing these vision centers. Pursuant to this agreement, each vision
center has an individual base term of five years from the date of opening,
followed by two options (each for two years), and one option for one year.
Each party has the right to terminate a location which fails to meet specified
sales levels. The agreement provides for annual fees based on a minimum
and percentage of sales. The agreement also gives the Company a right
of first refusal to open vision centers in all stores in Mexico owned
by Wal-Mart de Mexico. As of January 3, 1998, the Company operated
26 vision centers in Wal-Mart de Mexico stores.
4. ACQUISITION
In October 1997, the Company acquired the common stock of Midwest
Vision, Inc., a retail optical company which operated 51 vision centers in
Minnesota, Wisconsin, Iowa, and North Dakota. Unaudited annual sales for
Midwest Vision approximated $14.4 million for the calendar year 1997. The
purchase price was approximately $3.6 million, plus $1.4 million of assumed
long-term debt.
The acquisition was accounted for by the purchase method of accounting
and, accordingly, the purchase price was allocated to the assets acquired and
the liabilities assumed based on the estimated fair values at the date of
acquisition. The excess of purchase price over the estimated fair values of
the net assets acquired was recorded as an intangible asset (goodwill), which
is being amortized on a straight-line basis over 15 years for financial
reporting. Subsequent to the close date, the Company paid off the outstanding
long-term debt of Midwest Vision.
The estimated fair values of assets and liabilities acquired are
summarized as follows:
Cash $ 327
Inventory 1,332
Accounts receivable and other assets 1,398
Property and equipment 1,729
Excess of cost over net assets acquired 2,068
Accounts payable and accrued expenses (1,867)
Debt (1,433)
------
Net Purchase Price $3,554
======
Page 39 of 56<PAGE>
<PAGE>
The purchase price was paid in cash of $1.9 million, a debt instrument
(in the principal amount of $620,000 payable over five years), and 110,795
shares of the Company's common stock. Additionally, the Company made cash
payments of $239,000 related to investment advisory fees and other costs
directly associated with the acquisition. In connection with 100,000 shares
of the common stock, the Company also issued a put option to the seller,
entitling the seller to put such shares to the Company at $7.00 per share in
January 1999 or, if such shares are not then put back to the Company, at $9.00
per share in January 2000. If the seller exercises the put option, the Company
will settle the transaction by issuing additional shares to the seller such
that the aggregate fair market value of the shares equals the aggregate
guarantee value. The guarantee has been recorded at a fair market value. In
conjunction with the transaction, the Company entered into an employment
agreement with the seller which requires the performance of certain duties
and contains certain noncompete provisions.
The operating results of Midwest Vision are included in the Company's
consolidated results of operations from the date of acquisition.
5. INVENTORY
The Company classifies inventory as finished goods if such inventory is readily
available for sale to customers without any assembly or value added processing
to satisfy a customer's order. Finished goods include contact lens, over the
counter sunglasses and accessories. The Company classifies inventory as raw
material if such inventory requires assembly or value added processing to
satisfy a customer's order. This would include grinding a lens blank,
"cutting" the lens in accordance with a prescription from an optometrist, and
fitting the lens in a frame. Frames and uncut lens are considered raw
material. A majority of the Company's sales represent custom orders;
consequently, the majority of the Company's inventory is classified as raw
material.
Inventory balances, by classification, may be summarized as follows:
1996 1997
---- ----
Raw Material $15,199 $15,646
Finished Goods 8,279 7,003
Supplies 492 622
------- -------
$23,970 $23,271
======= =======
6. LONG-TERM DEBT
Long-term debt obligations at December 28, 1996 and January 3, 1998
consisted of the following (in 000's):
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Borrowings under revolving credit facility $26,500 $19,500
Other promissory notes 4,703
------- -------
26,500 24,203
Less current portion 478
------- -------
$26,500 $23,725
======= =======
</TABLE>
Page 40 of 56<PAGE>
<PAGE>
In July 1997, the Company entered into a syndicated $45 million
two-year unsecured revolving credit facility. The aggregate outstanding
balance is due for repayment in July 1999. The Company's credit facility
contains, among other covenants, a material adverse change clause and
certain minimum net worth and other requirements. Commitment fees
payable on the average daily balance of the unused portion of the credit
facility were .25% per annum in 1997. The Company paid approximately
$150,704 and $125,611 in various fees related to the revolving credit
facility in 1996 and 1997, respectively. Interest on the outstanding
advances is based on certain financial covenants and applicable interest
rates for Eurodollar or base loan borrowings, as defined in the agreement.
As of January 3, 1998, the Company had borrowed $19.5 million under
its credit facility at a weighted average interest rate of 6.9%. The
aggregate fair value of the Company's long-term debt obligation under
the credit facility is estimated to approximate its carrying value.
The Company has entered into rate swap agreements which effectively
convert underlying variable rate debt based on Eurodollar rates to fixed rate
debt. The agreements extend through February 20, 2000. The notional principal
amount on one agreement is $20 million, with an effective fixed rate of 6.93%,
which will expire on February 20, 1998. At that date, two separate agreements
will commence with an aggregate notional principal amount of $10 million and
an effective fixed rate which averages 7.52%. The fair market value of the
fixed rate hedges approximates book value. Under existing accounting
standards, this activity is accounted for as a hedging activity. The swaps
are settled every 90 days.
The Company entered into unsecured promissory notes relative to various
transactions completed with ELI and SPI (see Note 3) and the Midwest Vision
acquisition (see Note 4). The notes are fixed rate instruments, with rates
ranging from 6.4% to 8.5%. The promissory notes with ELI and SPI require
quarterly payments through January 2009 whereas the Midwest Vision note
requires monthly payments through October 2002. Based on current market
rates at January 3, 1998, the fair market value of the promissory notes is
approximately $80,000 less than book value. At January 3, 1998, future
minimum principal payments on the promissory notes were as follows (amounts
in 000's):
1998 $ 478
1999 487
2000 498
2001 509
2002 495
Thereafter 2,236
------
$4,703
The Company maintains an unsecured line of credit agreement with a
financial institution which, at the discretion of the lender, allows the
Company to borrow up to $5 million. The agreement is available to fund
financing needs on a short-term basis at a variable interest rate, determined
by the lender. As of year-end, there were no borrowings outstanding under
the agreement.
7. RELATED-PARTY TRANSACTIONS
In 1991, a receivable from the Company was assigned to a lease finance
company which is owned by a shareholder/director of the Company. The Company
made lease payments (including principal and interest) of $417,000 and $341,000
to this lease finance company in 1995 and 1996, respectively. Such lease was
paid in full as of September, 1996.
Page 41 of 56<PAGE>
<PAGE>
During 1995, 1996, and 1997, the Company purchased its business and
casualty insurance policies through an insurance agency in which a
shareholder/director has a substantial ownership interest. Total
premiums paid for policies acquired through the insurance company during
1995, 1996, and 1997 were approximately $910,000, $844,000, and $904,732,
respectively. The Audit Committee of the Company's Board
of Directors has approved such purchases.
In 1996, Edward G. Weiner, the Company's then Vice Chairman, was employed
at an annual salary of $165,000 pursuant to an employment agreement with the
Company with a term ending March 1, 2000. In connection with Mr. Weiner's
resignation from the Board of Directors in February 1997, the employment
agreement was terminated, and the Company (in exchange for a non-competition
agreement through March, 2000) paid Mr. Weiner an amount equal to a discounted
present value of the payments which would have been made under the employment
agreement. The payment amount was capitalized as other deferred costs and
will be amortized over the term of the non-compete agreement.
8. COMMITMENTS AND CONTINGENCIES
Noncancelable Operating Lease and License Agreements
As of January 3, 1998, the Company is a lessee under noncancelable
operating lease agreements for certain equipment which expire at various
dates through 1998. Additionally, the Company is required to pay minimum
and percentage license fees pursuant to certain commercial leases and
pursuant to its agreements with its host department store companies.
Effective December 20, 1991, the Company entered into a lease agreement
with Wal-Mart for approximately 66,000 square feet of corporate office space.
The term of the lease is ten years with a renewal option of seven years.
The Company paid Wal-Mart approximately $215,000 annually in rental fees in
1995, 1996, and 1997.
Effective July 1995, the Company entered into an operating lease for
a computer equipment upgrade that provides processing for the newly
installed management information and financial systems. The term of the
lease is three years. Lease expense is approximately $8,000 monthly.
Effective the first quarter 1996, the Company entered into operating
leases for 34 vehicles. The terms of the leases are cancelable by the
Company at any time, but the Company expects to retain the leases for the
three-year term. Lease expense is approximately $13,800 monthly.
Under the lease for its Los Angeles laboratory, the Company paid
$102,000, $101,000, and $87,000 in rental fees in 1995, 1996, and 1997,
respectively. In December 1997, the Company entered into a new five-year
lease for a successor facility in the Los Angeles area. Lease expense is
approximately $5,528 monthly.
In connection with its acquisition of Midwest Vision, Inc. (see Note
4), the Company entered into a ten-year lease for administrative headquarters
and an optical laboratory located in St. Cloud, Minnesota. The facility is
leased from the former owner of Midwest Vision. Lease expense on the
headquarters and laboratory is approximately $6,667 monthly which, in the
opinion of management, represents a fair market lease rate. Additionally,
the Company assumed operating lease agreements in connection with 51
freestanding locations obtained from the acquisition. Lease expense on
such leases is approximately $64,000 monthly.
Page 42 of 56<PAGE>
<PAGE>
Aggregate future minimum payments under the license and lease
arrangements are as follows (amounts in 000's):
1998 19,529
1999 19,296
2000 17,553
2001 14,592
2002 11,110
Thereafter 18,237
-------
$100,317
=======
Total expenses recognized under these license and lease arrangements
were approximately $17.0 million, $19.9 million, and $22.8 million for the
years ended December 30, 1995, December 28, 1996, and January 3, 1998,
respectively.
Gitano and Guy Laroche Trademark Licenses
The Company has separate license agreements with Gitano, Inc. and
Guy Laroche of North America, Inc., giving the Company the right to use
the trademarks "Gitano" and "Guy Laroche", respectively, in its vision
centers in North America. Each agreement requires the Company to pay
minimum and percentage royalties on retail and wholesale sales.
Pursuant to its terms, the Gitano agreement expired on June 30, 1997.
The agreement has, however, continued to be performed by the parties.
The Guy Laroche agreement, as amended, expires on December 31, 2001.
Under the Gitano agreement, the Company paid $113,000, $111,000, and
$121,000 in fees during 1995, 1996, and 1997, respectively. Under
the Guy Laroche agreement, the Company paid $150,000, $238,000, and
$176,000 in fees during 1995, 1996, and 1997, respectively.
Change in Control and Other Arrangements
There are agreements between the Company and seven of its executive
officers which provide severance benefits in the event of termination of
employment under certain circumstances following a change in control of
the Company (as defined). The circumstances are termination by the Company
other than because of death or disability commencing prior to a threatened
change in control (as defined), or for cause (as defined), or by the officer
as the result of a voluntary termination (as defined). Following any such
termination, in addition to compensation and benefits already earned, the
officer will be entitled to receive a lump sum severance payment equal to
up to three times the officer's annual rate of base salary. The term of
each agreement is for a rolling three-years unless the Company gives notice
that it does not wish to extend such term, in which case the term of the
agreement would expire three years from the date of the notice.
One executive officer is employed pursuant to an employment agreement
which provides for an annual salary and certain other benefits. Such
agreement further provides that the Company may at any time terminate
the executive's employment upon six months notice or upon no notice if
such termination is for cause, as defined.
Page 43 of 56<PAGE>
<PAGE>
9. INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounts Standards (SFAS) No. 109 "Accounting for Income Taxes," which
requires the use of the liability method of accounting for deferred income
taxes. The components of the net deferred tax assets/(liabilities) are as
follows (amounts in 000's):
<TABLE>
<CAPTION>
As of December 28, As of January 3,
1996 1998
<S> <C> <C>
Total deferred tax (liabilities) $(9,484) $(9,005)
Total deferred tax assets 10,658 8,738
Valuation allowance (2,406) (2,406)
------- -------
Net deferred tax (liabilities) $(1,232) $(2,673)
======= =======
</TABLE>
The sources of the difference between the financial accounting and tax
basis of the Company's liabilities and assets which give rise to the deferred
tax liabilities and deferred tax assets and the tax effects of each are as
follows (amounts in 000's):
<TABLE>
<CAPTION>
As of December 28, As of January 3,
1996 1998
---- ----
<S> <C> <C>
Deferred tax liabilities:
Depreciation $ 6,062 $ 5,506
Reserve for foreign losses 3,137 3,137
Store preopening costs 91 99
Other 194 263
------- -------
$ 9,484 $ 9,005
======= =======
Deferred tax assets:
Accrued expenses and reserves $ 1,471 $ 1,393
Inventory basis differences 326 145
Net operating loss carryforwards 8,650 4,677
Alternative minimum tax 135 2,117
Other 76 406
------- -------
$10,658 $ 8,738
======= =======
</TABLE>
Page 44 of 56<PAGE>
<PAGE>
The consolidated provision for income taxes consists of the following
(amounts in 000's):
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------------------------
December 30, December 28, January 3,
1995 1996 1998
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ 50 $ 135 $1,937
State 50 63 330
---- ------ ------
100 198 2,267
---- ------ ------
Deferred:
Federal 897 1,296
State 105 145
---- ------ ------
0 1,002 1,441
---- ------ ------
Total provision for income taxes $100 $1,200 $3,708
==== ====== ======
</TABLE>
The tax expense (benefit) differs from the amounts resulting from
multiplying income before income taxes by the statutory federal income tax
rate for the following reasons (amounts in 000's):
<TABLE>
<CAPTION>
Year Ended December 30, December 28, January 3,
1995 1996 1998
---- ---- ----
<S> <C> <C> <C>
Federal income tax (benefit) at statutory rate $(483) $1,591 $3,156
State income taxes, net of federal income
tax benefit 50 69 314
Foreign losses not deductible for U.S.
federal tax purposes 686 63 65
Valuation allowance for U.S. state and
federal taxes (181) (556)
Other 28 33 173
---- ------ ------
$100 $1,200 $3,708
==== ====== ======
</TABLE>
At January 3, 1998, the Company recorded a valuation allowance of
$2.4 million due to the uncertainty regarding the realizability of its
net operating loss carryforwards. A portion of the net operating loss
carryforward deferred tax asset (approximately $3.2 million) relates
to tax benefits (subject to the outcome of the audit discussed below)
from the exercise of stock options granted by the former Chairman of the
Company to two shareholders who own companies which recruited optometrists
for the Company. (See Note 12.) This benefit will be recorded as an addition
to paid-in-capital (and a reduction in the valuation allowance) when realized.
At January 3, 1998, the Company had U.S. regular tax net operating
loss carryforwards of $12 million (of which $8.3 million relates to the tax
benefits from the exercise of stock options discussed above) which can
reduce future federal income taxes. If not utilized, these carryforwards
will expire beginning in 2007.
Page 45 of 56<PAGE>
<PAGE>
As a result of an examination by the Internal Revenue Service ("IRS")
of the Company's 1992 tax return, the Company received a deficiency notice
in 1996 from the IRS, challenging the tax benefit relating to the exercise of
stock options referred to above. The Company has filed a petition in the
U.S. Tax Court, contesting the deficiency notice. The Company does not
expect that the outcome of this proceeding will have a material adverse
impact on the financial statements or conditions of the Company. Subject to
the execution of definitive documents, an agreement to settle this matter was
reached in February 1998. (See Note 15.)
In Mexico, the location of the Company's major foreign operations,
the Company pays the greater of its income tax or an asset tax. Because
the Company has operating losses in Mexico, the Company pays no income tax,
but it is subject to the asset tax. Therefore, no provision for income
taxes has been made on the Company's books for its operations in Mexico.
10. EARNINGS PER COMMON SHARE
In 1997, the Company adopted SFAS No. 128, "Earnings per Share". Basic
earnings per common share were computed by dividing net income by the
weighted average number of common shares outstanding during the year.
Diluted earnings per common share were computed as basic earnings per
common share, adjusted for outstanding stock options that are dilutive. The
computation for basic and diluted earnings per share may be summarized as
follows (amounts in 000's except per share information):
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Net Income (Loss) $(1,520) $ 3,480 $ 5,573
======= ======= =======
Weighted Shares Outstanding 20,538 20,618 20,676
Basic Earnings (Loss) per Share ($0.07) $0.17 $0.27
======= ======= =======
Weighted Shares Outstanding 20,538 20,618 20,676
Net Options Issued to Employees 88 163
------- ------- -------
Aggregate Shares Outstanding 20,538 20,706 20,839
Diluted Earnings (Loss) per Share ($0.07) $0.17 $0.27
======= ======= =======
</TABLE>
Outstanding options with an exercise price below the average price
of the Company's common stock have been included in the computation of
dilutive earnings per common share, using the treasury stock method, as of
the date of the grant. Stock options have been excluded from the calculation
of weighted average shares outstanding during 1995, as the effect would be
antidilutive.
11. SUPPLEMENTAL DISCLOSURE INFORMATION
Supplemental disclosure information is as follows (amounts in 000's):
<TABLE>
<CAPTION>
(i) Supplemental Cash Flow Information
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Cash paid for-
Interest $2,750 $2,565 $1,582
Income taxes 244 149 2,383
</TABLE>
Page 46 of 56<PAGE>
<PAGE>
(ii) Supplemental Noncash Investing and Financial Activities
The acquisition information relates to the ELI and SPI transactions
and the purchase of Midwest Vision, Inc. (see Notes 3 and 4).
1997
----
Business acquisitions, net of cash acquired
Fair value of assets acquired $4,459
Purchase price in excess of net assets acquired 6,671
Liabilities assumed (8,022)
Stock issued (836)
------
Net cash paid for acquisitions $2,272
(iii) Supplemental Balance Sheet Information
Significant components of accrued expenses and other current
liabilities may be summarized as follows:
1996 1997
---- ----
Accrued employee compensation and benefits $2,903 $5,425
Accrued license fees 1,851 2,349
At January 3, 1998, accrued expenses and other current liabilities
include an increase of $875,000 related to the Midwest Vision
operation.
(iv) Supplemental Income Statement Information
The components of other expense, net, may be summarized as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Interest expense on debt and capital leases $2,818 $2,338 $1,853
Purchase discounts on invoice payments (230) (430) (483)
Finance fees and amortization of
hedge and swap agreements 150 230 236
Interest income (99) (66) (38)
Other (13) 12 (14)
______ ______ ______
$2,626 $2,084 $1,554
====== ====== ======
</TABLE>
12. EQUITY TRANSACTIONS
Employee Stock Option and Incentive Award Plan
In 1996, the Company adopted the Restated Stock Option and Incentive
Award Plan (the "Plan") pursuant to which incentive stock options
qualifying under Section 422A of the Internal Revenue Code and nonqualified
stock options may be granted to key employees. The Plan also provides for
the issuance of other equity awards, such as awards of restricted stock.
The Plan replaced and restated all the Company's prior employee stock
option plans. A total of up to 3,350,000 shares of common stock may be
granted under the Plan (a total of up to 2,350,000 shares were available
for grant under the prior plans). The Plan is administered by the
Compensation Committee of the Company's Board of Directors. The
Page 47 of 56<PAGE>
<PAGE>
Compensation Committee has the authority to determine the persons
receiving options, option prices, dates of grants, and vesting periods,
although no option may have a term exceeding ten years. Options granted
prior to 1996 have a term of five years.
Directors' Stock Option Plan
In April 1997, the Company adopted the Restated Non-Employee Director
Stock Option Plan (the "Directors Plan"), pursuant to which stock options
for up to 500,000 shares of Common Stock may be granted to nonemployee
directors. The Directors Plan replaced and restated the Company's prior
non-employee director stock option plan. The Directors Plan provides for
automatic grants of options to purchase 7,500 shares of the Company's
common stock to each nonemployee director serving on the date of each
annual meeting of shareholders, beginning with the 1997 annual meeting. Of
the options granted, 50% of the shares under each option are exercisable
on the second anniversary of the grant date, 75% in three years, and
100% in four years. All option grants are at exercise prices no less
than the market value of a share of Common Stock on the date of grant
and are exercisable for a ten-year period. Options granted under the
predecessor stock option plan are exercisable for a five-year period.
Options covering 67,500 shares under the Directors Plan were exercisable
at January 3, 1998.
Restricted Stock Awards
Restricted stock grants, with an outstanding balance of 54,000 shares
at January 3, 1998, were awarded to certain officers and key employees which
require five years of continuous employment from the date of grant before
vesting and receiving the shares without restriction. The number of shares
to be received without restriction is based on the Company's performance
relative to a peer group of companies. Unamortized deferred compensation
expense with respect to the restricted stock amounted to $225,000 at January 3,
1998 and is being amortized over the five-year vesting period. Deferred
compensation expense aggregated $54,000 in 1997. A summary of restricted
stock granted during 1997 is as follows:
1997
----
Shares granted 60,000
Shares forfeited 6,000
Weighted-average fair value of
stock granted during year $4.81
All Stock Option Plans
All exercise prices represent the estimated fair value of the Common
Stock on the date of grant as determined by the Board of Directors. Of the
options granted, 50% of the shares under each option are exercisable after
two years from the grant date, 75% in three years, and 100% in four years.
Page 48 of 56<PAGE>
<PAGE>
Stock option transactions during the three years ended January 3, 1998
were as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Options outstanding beginning of year 1,736,150 1,813,195 1,950,166
Options granted 576,044 395,305 631,864
Options exercised (75,927) (55,371) (7,840)
Options cancelled (423,072) (202,963) (279,987)
--------- --------- ---------
Options outstanding end of year 1,813,195 1,950,166 2,294,203
========= ========= =========
Options exercisable end of year 386,644 734,109 1,020,674
========= ========= =========
Weighted average option
prices per share:
Granted $4.638 $3.394 $4.878
Exercised $0.248 $0.278 $2.168
Cancelled $8.376 $7.816 $9.640
Outstanding at year end $7.569 $6.904 $6.028
Options exercisable end of year $11.376 $9.806 $7.891
</TABLE>
The Company has adopted the disclosure provisions of Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." The Company will continue to account for stock option
awards in accordance with APB Opinion No. 25. Had compensation cost for
the Plan been determined based on the fair value at the grant date for
awards in 1995, 1996 and 1997 consistent with the provisions of SFAS No. 123,
the Company's net earnings and earnings per share would have been reduced
to the pro forma amounts indicated below (amounts in 000's except per share
information):
1995 1996 1997
As Reported: ---- ---- ----
Net Earnings (Loss) ($1,520) $3,480 $5,573
=================================
Earnings per share ($0.07) $0.17 $0.27
=================================
Pro Forma:
Net Earnings (Loss) ($1,769) $3,163 $5,142
=================================
Earnings per share ($0.09) $0.15 $0.25
=================================
Basic and diluted earnings per share are the same for each year.
Page 49 of 56<PAGE>
<PAGE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model. The following weighted
average assumptions were used in the model:
1995 1996 1997
---- ---- ----
Dividend Yield 0.00% 0.00% 0.00%
Expected Volatility 86% 86% 74%
Risk Free Interest Rates 6.70% 5.90% 6.14%
Expected Lives (years) 4.34 4.34 4.51
The following table shows the options outstanding and the options
exercisable with pertinent data related to each:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- -----------------------------------------------------------------------------------------------------------
Weighted
Average Weighted Number Weighted
Number Remaining Average Exercisable Average
Range of Outstanding Contractual Exercise As of Exercise
Exercise Prices As of 1/3/98 Life Price 1/3/98 Price
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$3.12 - $4.81 890,877 7.48 $4.059 79,856 $3.863
$4.88 - $7.00 1,022,915 3.17 $5.417 562,157 $5.490
$7.25 - $21.38 380,411 0.90 $12.282 378,661 $12.306
--------- ---- -------- --------- --------
$3.12 - $21.38 2,294,203 4.47 $6.028 1,020,674 $7.891
</TABLE>
Principal Shareholder Transactions
On November 13, 1990, in consideration of the services rendered by
two principals in two companies recruiting optometrists for the Company
(Note 3), the then Chairman and largest shareholder of the Company entered
into option agreements which granted each of the two principals the option
(the "Option") to acquire from the then Chairman 683,775 shares of Common
Stock. The Options were exercised in 1992 and 1994.
Upon the exercise of all the Options, the Company became entitled to
a tax benefit valued at approximately $4.1 million, which is equal to the
number of option shares multiplied by the difference between the market price
of the option shares as of the date of exercise and the exercise price for
the option shares, adjusted for the impact of tax rates. The tax benefit
will be treated as a contribution to capital and will have no impact on
earnings for financial reporting purposes. The timing and the amount of
the benefit from the tax deduction will depend on future earnings of the
Company. The Company has recorded a valuation allowance against the tax
benefit. The Company has received a deficiency notice from the Internal
Revenue Service with respect to the tax benefit the Company expects to
realize from the exercise of the Options. (See Note 9.)
Page 50 of 56<PAGE>
<PAGE>
Preferred Stock
The Company is authorized to issue up to 5,000,000 shares of preferred
stock, par value $1 per share, with such terms, characteristics and
designations as may be determined by the Board of Directors. No such
shares are issued and outstanding.
Shareholder Rights Plan
In January of 1997, the Company's Board of Directors approved a
Shareholders Rights Plan (the "Rights Plan"). The Rights Plan provides for
the distribution of one Right for each outstanding share of the Company's
Common Stock held of record as of the close of business on January 27, 1997
or that thereafter becomes outstanding prior to the earlier of the final
expiration date of the Rights or the first date upon which the Rights become
exercisable. Each Right entitles the registered holder to purchase from the
Company one one-hundredth of a share of Series A Participating Cumulative
Preferred Stock, par value $0.01 per share, at a price of $40.00 (the
"Purchase Price"), subject to adjustment. The Rights are not exercisable
until ten calendar days after a person or group (an "Acquiring Person") buys
or announces a tender offer for 15% or more of the Company's Common Stock,
or if any person or group has acquired such an interest, the acquisition by
that person or group of an additional 2% of the Company's Common Stock. In
the event the Rights become exercisable, then each Right will entitle the
holder to receive that number of shares of Common Stock (or, under certain
circumstances, an economically equivalent security or securities of the
Company) having a market value equal to the Purchase Price. If, after any
person has become an Acquiring Person (other than through a tender offer
approved by qualifying members of the Board of Directors), the Company
is involved in a merger or other business combination where the Company
is not the surviving corporation, or the Company sells 50% or more of
its assets, operating income, or cash flow, then each Right will entitle
the holder to purchase, for the Purchase Price, that number of shares of
common or other capital stock of the acquiring entity which at the time
of such transaction have a market value of twice the Purchase Price. The
Rights will expire on January 26, 2007, unless extended, unless the Rights
are earlier exchanged, or unless the Rights are earlier redeemed by the
Company in whole, but not in part, at a price of $0.001 per Right. The
Shareholder Rights Plan was amended in February 1998. (See Note 16.)
Page 51 of 56
<PAGE>
<PAGE>
13. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
Selected quarterly data for the Company for the fiscal years ended
December 28, 1996 and January 3, 1998 is as follows (amounts in 000's except
per share information). The fourth quarter of fiscal 1997 consisted of 14
weeks; all other quarters consisted of 13 weeks.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 28, 1996:
Quarter Ended
- --------------------------------------------------------------------------------------------------------------------------------
March 30 June 29 September 28 December 28
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Net Sales $40,133 $40,525 $41,347 $38,371
Cost of Goods Sold 18,724 19,133 19,684 19,151
------- ------- ------- -------
Gross Profit 21,409 21,392 21,663 19,220
Selling, General, and
Administrative Expenses 19,386 19,202 19,679 18,653
------- ------- ------- -------
Operating Income 2,023 2,190 1,984 567
Other Expense, Net 659 507 453 465
------- ------- ------- -------
Income Before Income Taxes 1,364 1,683 1,531 102
Provision for Income Taxes 373 431 321 75
------- ------- ------- -------
Net Income $ 991 $ 1,252 $ 1,210 $ 27
======= ======= ======= =======
Basic Earnings per Common Share $ .05 $ .06 $ .06 $ --
======= ======= ======= =======
Diluted Earnings per Common Share $ .05 $ .06 $ .06 $ --
======= ======= ======= =======
</TABLE>
Page 52 of 56<PAGE>
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 3, 1998:
Quarter Ended
- --------------------------------------------------------------------------------------------------------------------------------
March 29 June 28 September 27 January 3
-------- ------- ------------ ---------
<S> <C> <C> <C> <C>
Net Sales $44,362 $44,512 $45,862 $51,618
Cost of Goods Sold 20,143 20,654 20,926 24,640
------- ------- ------- -------
Gross Profit 24,219 23,858 24,936 26,978
Selling, General, and
Administrative Expenses 20,971 20,793 21,559 25,833
------- ------- ------- -------
Operating Income 3,248 3,065 3,377 1,145
Other Expense, Net 488 391 314 361
------- ------- ------- -------
Income Before Income Taxes 2,760 2,674 3,063 784
Provision for Income Taxes 1,107 1,054 1,204 343
------- ------- ------- -------
Net Income $ 1,653 $ 1,620 $ 1,859 $ 441
======= ======= ======= =======
Basic Earnings per Common Share $ .08 $ .08 $ .09 $ .02
======= ======= ======= =======
Diluted Earnings per Common Share $ .08 $ .08 $ .09 $ .02
======= ======= ======= =======
</TABLE>
14. DISPOSITIONS
Sale of French Operations
On December 29, 1995, the Company sold its shares in IVACAR, S.A., its
French subsidiary, to Carrefour France, for the sum of 18,000,000 FF
($3.7 million U.S.), paid in cash at the closing. The initial sum was
received the first business day of 1996. In connection with this transaction,
the Company recorded a gain of $491,000 in 1995. Such gain was offset by
the provisions discussed below.
Sale of Venture Operations
The Venture operations were disposed of in the fourth quarter 1995
and the first quarter 1996. In anticipation of the disposition of the
Venture operations, a provision of $1.4 million was recorded in 1995 to
reduce the net assets of the Venture operations to management's estimate
of net realizable value.
Net sales and operating losses for each operation (exclusive of
disposition costs, allocated corporate overhead, interest and taxes) for
each period presented is summarized as follows (000's):
Venture France
Year Ended December 28, 1996
Net Sales $ 37 $ 402
Operating Losses $ (81) $ (240)
Year Ended December 30, 1995
Net Sales $ 2,257 $ 5,117
Operating Losses $(2,073) $ (523)
Page 53 of 56<PAGE>
<PAGE>
Investment in Czech Republic and Slovakia
In 1995, the Company decided that it would pursue the disposition of its
interest in the joint venture which operated three vision centers in Eastern
Europe. A provision has been recorded to reflect management's estimate of net
realizable value of the Company's investment in such joint venture.
Aurrera Store Closures
In 1995, the Company decided to close 16 underperforming vision centers
located in Aurrera stores. The Mexican operations recorded a $346,000
provision to reduce the assets in those locations to management's estimate
of net realizable value and record separation costs for employees. The
Company closed six vision centers in February 1995 and the remainder in the
first quarter 1996.
Foreclosure Proceedings - Frame Manufacturer
In February 1995, the Company foreclosed on its security interest
covering the assets of CompuFrame, a frame manufacturer. The Company
recorded a provision of $400,000 to reduce the net carrying amount of assets
held for sale to management's estimate of their net realizable value. The
remaining assets were liquidated in 1996.
The net assets of the Venture operations and the frame manufacturer
were classified as assets held for sale in the current asset section
of the Company's balance sheet at December 30, 1995. The dispositions
were completed in 1996. For purposes of the accompanying statements of cash
flows, the change in components comprising assets held for sale is reflected
in the original balance sheet classification.
15. REPORTABLE BUSINESS SEGMENTS
The Company's operating business segments provide quality retail optical
services and products that represent high value and satisfaction to the
customer. Vision centers offer eyewear through each retail location, which
includes eyeglasses, contact lenses, and sunglasses. Optometrists are
available on-site to provide eye examinations. The separate businesses within
the Company use the same production processes for eyeglass lens manufacturing,
offer products and services to a broad range of customers and utilize the
Company's central administrative offices to coordinate product purchases and
distribution to retail locations. A field organization provides management
support to individual store locations. The Mexico operation has a separate
laboratory and distribution center in Mexico and buys a majority of its
products from local vendors. However, market demands, customer requirements,
laboratory manufacturing and distribution processes, as well as product
offerings, are substantially the same for the domestic and Mexico business.
Consequently, the Company considers its domestic and Mexico businesses as one
reportable segment under the definitions required by SFAS 131 - Disclosures
about Segments of an Enterprise and Related Information.
Page 54 of 56<PAGE>
<PAGE>
Information relative to sales and identifiable assets for the United
States and Mexico for the fiscal years ended December 30, 1995, December 28,
1996, and January 3, 1998 are summarized in the following tables (amounts in
000's). Identifiable assets include all assets associated with operations
in the indicated reportable segment excluding intercompany receivables and
investments.
<TABLE>
<CAPTION>
1997 United States Mexico Other Consolidated
---- ------------- ------ ----- ------------
<S> <C> <C> <C> <C>
Sales $182,333 $2,988 $1,033 $186,354
======== ====== ====== ========
Identifiable Assets $ 80,284 $2,279 $ 687 $ 83,250
======== ====== ====== ========
1996
----
Sales $156,599 $2,068 $1,709 $160,376
======== ====== ====== ========
Identifiable Assets $ 72,209 $1,811 $ 544 $ 74,564
======== ====== ====== ========
1995
----
Sales $136,633 $2,915 $6,025 $145,573
======== ====== ====== ========
Identifiable Assets $ 74,270 $2,611 $4,356 $ 81,237
======== ====== ====== ========
</TABLE>
16. SUBSEQUENT EVENTS
In February 1998, the Company's Board of Directors amended the Company's
Shareholder Rights Plan (See Note 12) effective March 1, 1998 to provide
that Rights under such plan can be redeemed and certain amendments to such
plan can be effected only with the approval of the Continuing Directors,
which are defined in the Rights Plan as the current directors and any future
directors that are approved or recommended by Continuing Directors.
In February 1998, the Company and the Internal Revenue Service agreed,
subject to execution of definitive settlement documents, to settle litigation
in the U.S. Tax Court arising out of the grant and exercise of certain stock
options. (See Notes 9 and 12.) The settlement provides that the Company will
receive substantially all of the deduction it has claimed.
Page 55 of 56<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
NATIONAL VISION ASSOCIATES, LTD. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
December 30, 1995, December 28, 1996, and January 3, 1998
(in 000's)
Additions
------------------------------
Balance at Charged to Charged to Balance at
Description Beginning of Period Cash and Expense Other Accounts Deductions End of Period
- ----------- ------------------- ---------------- -------------- ---------- -------------
<S> <C> <C> <C> <C>
Year ended
December 30, 1995:
Allowance for
Uncollectible
Accounts Receivable $253 $216 $130 $339
Year ended
December 28, 1996:
Allowance for
Uncollectible
Accounts Receivable $339 $177 $163 $353
Year ended
January 3, 1998:
Allowance for
Uncollectible
Accounts Receivable $353 $928 $519 $762
</TABLE>
Page 56 of 56
<PAGE>
STOCK PURCHASE AGREEMENT
BETWEEN
MYREL NEUMANN, O.D.
AND
NATIONAL VISION ASSOCIATES, LTD.
SEPTEMBER 15, 1997
<PAGE>
<PAGE>
TABLE OF CONTENTS
Page Nos.
1. Definitions
2. Purchase and Sale of Company Shares
(a) Basic Transaction
(b) Purchase Price
(c) The Closing
(d) Deliveries at the Closing
3. Representations and Warranties Concerning the Transaction
(a) Representations and Warranties of the Seller
(b) Representations and Warranties of the Buyer
4. Representations and Warranties Concerning the Company
(a) Organization, Qualification, and Corporate Power
(b) Capitalization
(c) Noncontravention
(d) Brokers' Fees
(e) Title to Assets
(f) Subsidiaries
(g) Financial Statements
(h) Events Subsequent to Most Recent Fiscal Year End
(i) Undisclosed Liabilities
(j) Legal Compliance
(k) Tax Matters
(l) Real Property
(m) Intellectual Property
(n) Tangible Assets
(o) Inventory
(p) Contracts
(q) Receivables
(r) Powers of Attorney
(s) Insurance
(t) Litigation
(u) Product Warranty
(v) Product Liability
(w) Employees and Optometrists
(x) Employee Benefits
(y) Guaranties
(z) Environmental Matters
(aa) Certain Business Relationships with the Company
(bb) Disclosure
<PAGE>
<PAGE>
5. Pre-Closing Covenants
(a) General
(b) Notices and Consents
(c) Operation of Business
(d) Preservation of Business
(e) Full Access
(f) Notice of Developments
(g) Exclusivity
(h) Cash Payments
6. Post-Closing Covenants
(a) General
(b) Litigation Support
(c) Transition
(d) Confidentiality
(e) Company Indebtedness
(f) Securities
7. Conditions to Obligation to Close
(a) Conditions to Obligation of the Buyer
(b) Conditions to Obligation of the Seller
8. Remedies for Breaches of This Agreement
(a) Survival of Representations and Warranties
(b) Indemnification Provisions for Benefit of the Buyer
(c) Indemnification Provisions for Benefit of the Seller
(d) Matters Involving Third Parties
(e) Adjustment of Purchase Price
(f) Recoupment Under Buyer Note
(g) Other Indemnification Provisions
9. Tax Matters
(a) Tax Periods Ending on or Before the Closing Date
(b) Tax Periods Beginning Before and Ending After the Closing Date
(c) Cooperation on Tax Matters
(d) Intentionally Omitted
(e) Certain Taxes
10. Termination
(a) Termination of Agreement
(b) Effect of Termination
<PAGE>
<PAGE>
11. Miscellaneous
(a) Intentionally Omitted
(b) Press Releases and Public Announcements
(c) No Third-Party Beneficiaries
(d) Entire Agreement
(e) Succession and Assignment
(f) Counterparts
(g) Headings
(h) Notices
(i) Governing Law
(j) Amendments and Waivers
(k) Severability
(l) Expenses
(m) Construction
(n) Incorporation of Exhibits and Schedules
(o) Specific Performance
(p) Arbitration
(q) Time of Essence
<PAGE>
<PAGE>
STOCK PURCHASE AGREEMENT
Agreement entered into as of September 15, 1997, by and between
National Vision Associates, Ltd., a Georgia corporation (the "Buyer"),
and Myrel Neumann, O.D., an optometrist licensed in Minnesota (the "Seller").
Recitals
A. The Seller owns all of the outstanding capital stock of Midwest
Vision, Inc., a Minnesota corporation (the "Company").
B. The Company is in the business of selling eyeglasses, contact
lenses, industrial eyewear and providing related optical and
optometric goods and services.
C. This Agreement contemplates a transaction in which the Buyer will
purchase from the Seller, and the Seller will sell to the Buyer,
all of the outstanding capital stock of the Company in return
for cash, the Buyer Note, and common stock of the Buyer.
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the receipt and sufficiency of which are
acknowledged, the Parties agree as follows.
1. Definitions
"Accredited Investor" has the meaning set forth in Regulation D
promulgated under the Securities Act.
"Action" means any claim, action, suit, hearing, charge, complaint,
demand, arbitration, mediation, inquiry, proceeding or investigation by or
before any Authority (or arbitrator or mediator, as the case may be) whether
at law or in equity, whether criminal or civil in nature.
"Accounting Applications" has the meaning set forth in Section 2(e)(i)
below.
"Accounting Firm" means Arthur Andersen, LLP.
"Actual Value" has the meaning set forth in Section 2(e) below.
"Adverse Consequences" means all Actions, Orders, damages, dues,
penalties, fines, costs, amounts paid in settlement, Liabilities,
obligations, Taxes, liens, losses, expenses, and fees, including court costs
and reasonable attorneys' fees and expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
<PAGE>
<PAGE>
"Affiliated Group" means any affiliated group within the meaning of
Code Section 1504(a) or any similar group defined under a similar provision of
state, local or foreign law.
"Agreement" means this Stock Purchase Agreement.
"Ancillary Agreements" means the Headquarters Lease, the Neumann
Employment Agreement, the Release, and the Put Option Agreement.
"Authority" means any federal, state, or local or any foreign
government, governmental, regulatory or administrative authority, agency,
or commission, or any court, tribunal or arbitral body.
"Bank" means First American Bank, N.A.
"Basis" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms or could form the basis
for any specified consequence.
"Buyer" has the meaning set forth in the preamble above.
"Buyer Note" means the promissory note attached as Exhibit A.
"Closing" has the meaning set forth in Section 2(c) below.
"Closing Date" has the meaning set forth in Section 2(c) below.
"Closing Date Balance Sheet" has the meaning set forth in Section 2(e)
below.
"Code" means the Internal Revenue Code of 1986, as amended.
"COBRA" means the requirements of Part 6 of Subtitle B of Title I of
ERISA and Code Section 4980B.
"Common Shares" means shares of common stock, par value $.01 per share,
of the Buyer.
"Company" has the meaning set forth in the recitals above.
"Company Guarantee" means a guarantee, dated July 25, 1996, by the
Company in favor of the Bank, by which the Company guarantees payment of the
Neumann Indebtedness.
"Company Indebtedness" means indebtedness of the Company to the Bank
represented by the Loan Documents.
2
<PAGE>
<PAGE>
"Company Share" means any share of the common stock, par value $100
per share, of the Company.
"Confidential Information" means any information concerning the
businesses and affairs of the Company that is not already generally
available to the public.
"Deferred Intercompany Transaction" has the meaning set forth in
Reg. Section 1.1502-13.
"Designated Leases" has the meaning set forth in Section 7(a)(x)
"Disclosure Schedule" has the meaning set forth in Section 4 below.
"Draft Closing Date Balance Sheet" has the meaning set forth in Section
2(e) below.
"Employee Benefit Plan" means any (a) nonqualified deferred
compensation or retirement plan or arrangement, (b) qualified defined
contribution retirement plan or arrangement which is an Employee Pension
Benefit Plan, (c) qualified defined benefit retirement plan or arrangement
which is an Employee Pension Benefit Plan (including any Multiemployer
Plan), or (d) Employee Welfare Benefit Plan or material fringe benefit or
other retirement, bonus, or incentive plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
Section 3(2).
"Employee Plan" has the meaning set forth in Section 4(x) below.
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
Section 3(1).
"Employees" means the employees of the Company.
"Environmental Requirements" shall mean all federal, state and local
statutes, regulations, ordinances and other provisions having the force or
effect of law, all judicial and administrative orders and determinations,
all contractual obligations and all common law concerning public health and
safety, worker health and safety, and pollution or protection of the
environment, including without limitation all those relating to the
presence, use, production, generation, handling, transportation, treatment,
storage, disposal, distribution, labeling, testing, processing, discharge,
release, threatened release, control, or cleanup of any hazardous materials,
substances or wastes, chemical substances or mixtures, pesticides,
pollutants, contaminants, toxic chemicals, petroleum products or byproducts,
asbestos, polychlorinated biphenyls, noise or radiation, each as amended and
as now or hereafter in effect.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Estimated Net Book Value" means $1,319,191.
3<PAGE>
<PAGE>
"Excess Amount" has the meaning set forth in Section 2(f) below.
"Excess Consideration" has the meaning set forth in Schedule 2(b).
"Exhibit" means an exhibit to this Agreement.
"Fiduciary" has the meaning set forth in ERISA Section 3(21).
"Financial Statement" has the meaning set forth in Section 4(g) below.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Headquarters" means the administrative offices and optical laboratory
of the Company located at 2765 Quail Road Northeast, Sauk Rapids, Minnesota.
"Headquarters Lease" means the lease agreement attached hereto as
Exhibit B.
"High Value" has the meaning set forth in Section 2(e) below.
"Indemnified Party" has the meaning set forth in Section 8(d) below.
"Indemnifying Party" has the meaning set forth in Section 8(d) below.
"Index" means the attached index of Exhibits, Schedules, and other
items.
"Intellectual Property" means (a) all inventions (whether patentable
or unpatentable and whether or not reduced to practice), all improvements
thereto, and all patents, patent applications, and patent disclosures,
together with all reissuances, continuations, continuations-in-part,
revisions, extensions, and reexaminations thereof, (b) all trademarks,
service marks, trade dress, logos, trade names, and corporate names,
together with all translations, adaptations, derivations, and combinations
thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith,
(c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works
and all applications, registrations, and renewals in connection therewith,
(e) all trade secrets and confidential business information (including
ideas, research and development, know-how, formulas, compositions,
manufacturing and production processes and techniques, technical data,
designs, drawings, specifications, customer and supplier lists, pricing
and cost information, and business and marketing plans and proposals),
(f) all computer software (including data and related documentation),
(g) all other proprietary rights, and (h) all copies and tangible
embodiments thereof (in whatever form or medium).
4<PAGE>
<PAGE>
"Knowledge" means actual knowledge after reasonable investigation.
"Liability" means any liability or obligation of any nature whatsoever
(whether known or unknown, whether asserted or unasserted, whether absolute
or contingent, whether accrued or unaccrued, whether liquidated or
unliquidated, and whether due or to become due), including any liability
for Taxes.
"Loan Documents" means the loan and related documents attached hereto
as Exhibit C.
"Low Value" has the meaning set forth in Section 2(e) below.
"Most Recent Balance Sheet" means the balance sheet contained within
the Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth in
Section 4(g) below.
"Most Recent Fiscal Month End" has the meaning set forth in Section
4(g) below.
"Most Recent Fiscal Year End" has the meaning set forth in Section 4(g)
below.
"Multiemployer Plan" has the meaning set forth in ERISA Section 3(37).
"Net Book Value" means the excess of assets over liabilities as shown
on the Closing Date Balance Sheet.
"Neumann Employment Agreement" means the employment agreement attached
as Exhibit D.
"Neumann Guarantee" means a guarantee, dated July 25, 1996, by the
Seller in favor of the Bank, by which the Seller guarantees payment of the
Company Indebtedness.
"Neumann Indebtedness" means indebtedness of the Seller to the Bank
represented by the Loan Documents.
"Notice" has the meaning set forth in Section 11(h) below.
"Optometric Agreements" means the agreements between the Company and
the Optometrists.
"Optometrists" means the optometrists who, as of the date of this
Agreement, render optometric and/or other services on premises of the
Company.
"Order" means any order, ruling, writ, judgment, injunction, decree,
demand letter, stipulation, determination or award issued or entered into
or agreed to with any Authority.
5<PAGE>
<PAGE>
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to
quantity and frequency).
"Party" means the Buyer and the Seller jointly.
"Permit" has the meaning set forth in Section 4(j)(ii) below.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an
unincorporated organization, or a governmental entity (or any department,
agency, or political subdivision thereof).
"Policy" means the following policies of life insurance No. 4302124
written by Principal Mutual Life Insurance Company and No. 0140120597
written by Lincoln Benefit Life Company.
"Preliminary Purchase Price" has the meaning set forth in Section 2(b)
below.
"Prohibited Transaction" has the meaning set forth in ERISA Section
406 and Code Section 4975.
"Purchase Price" has the meaning set forth in Section 2(f) below.
"Put Option Agreement" means the option agreement attached hereto as
Exhibit E.
"Receivables" means all accounts receivable, notes and other amounts
receivable from third parties, including (without limitation) customers and
employees, whether or not in the Ordinary Course of Business, together with
any unpaid financial charges accrued thereon.
"Release" means the release attached hereto as Exhibit F.
"Schedule" means a schedule to this Agreement.
"Securities" means, collectively, the Buyer Note and the Common Shares
to be delivered to the Seller under this Agreement.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
as amended.
"Security Interest" means any mortgage, pledge, lien (including any
environmental and tax liens), encumbrance, charge, or other security
interest.
"Seller" has the meaning set forth in the preamble above.
"Seller's Note Payable" means the promissory note attached as Exhibit G.
6<PAGE>
<PAGE>
"Seller's Note Receivable" means the promissory note attached as
Exhibit H.
"Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has
the power to vote or direct the voting of sufficient securities to elect a
majority of the directors.
"Sunset Date" has the meaning set forth in Section 8(a) below.
"Sunset Representations" has the meaning set forth in Section 8(a)
below.
"Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under
Code Section 59A), customs duties, built-in gains tax under Code Section
1374, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property,
sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any
interest, penalty, or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule
or attachment thereto, and including any amendment thereof.
"Third Party Claim" has the meaning set forth in Section 8(d) below.
"Trailing Closing Price" means the average closing sale price of the
Common Shares (as reported by the National Association of Securities Dealers
Inc. Automatic Quotation System or the primary stock exchange or over the
counter market upon which the Common Shares are then traded) during the 20
consecutive trading days ending on the date the Buyer delivers to the Seller
the Draft Closing Date Balance Sheet.
"Transaction" means the transactions contemplated by this Agreement.
2. Purchase and Sale of Company Shares.
(a) Basic Transaction. On and subject to the terms and conditions of
this Agreement, the Buyer agrees to purchase from the Seller, and the Seller
agrees to sell to the Buyer, all of his Company Shares for the consideration
specified below in this Section 2.
(b) Preliminary Purchase Price. The Buyer agrees to pay to the Seller
at the Closing the preliminary purchase price (the "Preliminary Purchase
Price") by delivery of (i) the Buyer Note, (ii) cash in the amount shown
on Schedule 2(b) payable by wire transfer or delivery of other immediately
available funds, and (iii) a certificate representing the number of Common
7<PAGE>
<PAGE>
Shares shown on Schedule 2(b). Each such share shall have a value equal to
the closing sale price of the Common Shares, as reported by the National
Association of Securities Dealers, Inc. Automatic Quotation System, on the
Closing Date.
(c) The Closing. The closing of the Transaction (the "Closing") shall
take place at the offices of Hall & Byers, P.A. in St. Cloud, Minnesota,
commencing at 9:00 a.m. local time on the business day following the
satisfaction or waiver of all conditions to the obligations of the
Parties to consummate the Transaction (other than conditions with respect
to actions the respective Parties will take at the Closing itself) or such
other date as the Buyer and the Seller may mutually determine (the
"Closing Date"); provided, however, that the Closing Date shall
be no earlier than September 30, 1997. If and only if the Closing
actually occurs on or before October 30, 1997, the Closing Date shall be
deemed to be September 30, 1997; otherwise, the Closing Date shall be the
date on which the Closing occurs.
(d) Deliveries at the Closing. At the Closing, (i) the Seller will
deliver to the Buyer the various certificates, instruments, and documents
referred to in Section 7(a) below, (ii) the Buyer will deliver to the
Seller the various certificates, instruments, and documents referred to
in Section 7(b) below, (iii) the Seller will deliver to the Buyer stock
certificates representing all of his Company Shares, endorsed in blank
or accompanied by duly executed assignment documents, and (iv) the
Buyer will deliver to the Seller the consideration specified in Section
2(b) above.
(e) Preparation of Closing Date Balance Sheet.
(i) Within 60 days after the Closing Date, the Buyer will
prepare and deliver to the Seller a draft balance sheet
(the "Draft Closing Date Balance Sheet") for the Company
as of the close of business on the Closing Date (determined
on a pro forma basis as though the Parties had not
consummated the Transaction). The Buyer will prepare the
Draft Closing Date Balance Sheet in accordance with GAAP
applied on a basis consistent with the preparation of the
Financial Statements. The Parties acknowledge that such
basis includes application of the accounting judgments
described on Schedule 2(e)(i) (the "Accounting Applications").
(ii) If the Seller has any objections to the Draft Closing Date
Balance Sheet, he will deliver a detailed statement
describing his objections to the Buyer within 30 days after
receiving the Draft Closing Date Balance Sheet. The Buyer
and the Seller will use reasonable efforts to resolve any
such objections themselves. If the Parties do not obtain a
final resolution within 30 days after the Buyer has received
the statement of objections, however, the Accounting Firm
will resolve any remaining objections. The determination
of the Accounting Firm will be set forth in writing and will
be conclusive and binding upon the Parties except for the
case of clear mistake or gross negligence. The Buyer will
revise the Draft Closing Date Balance Sheet as appropriate
8<PAGE>
<PAGE>
to reflect the resolution of any objections thereto pursuant
to this Section 2(e)(ii). The "Closing Date Balance Sheet"
shall mean the Draft Closing Date Balance Sheet together
with any revisions thereto pursuant to this Section 2(e)(ii).
(iii)In the event the Parties submit any unresolved objections to
the Accounting Firm for resolution as provided in Section
2(e)(ii) above, the Buyer and the Seller will share
responsibility for the fees and expenses of the Accounting
Firm as follows:
(A) if the Accounting Firm resolves all of the remaining
objections in favor of the Buyer (the Net Book Value
so determined is referred to herein as the "Low Value"),
the Seller will be responsible for all of the fees and
expenses of the Accounting Firm.
(B) if the Accounting Firm resolves all of the remaining
objections in favor of the Seller (the Net Book Value
so determined is referred to herein as the "High Value"),
the Buyer will be responsible for all of the fees and
expenses of the Accounting Firm; and
(C) if the Accounting Firm resolves some of the remaining
objections in favor of the Buyer and the rest of the
remaining objections in favor of the Seller (the Net Book
Value so determined is referred to herein as the "Actual
Value"), the Seller will be responsible for that fraction
of the fees and expenses of the Accounting Firm equal
to (x) the difference between the High Value and the
Actual Value over (y) the difference between the High
Value and the Low Value, and the Buyer will be
responsible for the remainder of the fees and expenses.
(iv) The Buyer will make the work papers and back-up materials
used in preparing the Draft Closing Date Balance Sheet, and
the books, records, and financial staff of the Company
available to the Seller and his accountants and other
representatives at reasonable times and upon reasonable
notice at any time during (A) the preparation by the Buyer
of the Draft Closing Date Balance Sheet, (B) the review by
the Seller of the Draft Closing Date Balance Sheet, and
(C) the resolution by the Parties of any objections thereto.
(f) Adjustment to Preliminary Purchase Price. The Preliminary Purchase
Price will be adjusted as follows:
(i) If the Net Book Value exceeds the Estimated Net Book Value,
the Buyer will pay to the Seller an amount (such amount, the
"Excess Amount") equal to such excess by delivery of the
9<PAGE>
<PAGE>
Excess Consideration within three business days after the
date on which the Net Book Value finally is determined
pursuant to Section 2(e) above.
(ii) If the Net Book Value is less than the Estimated Net Book
Value, the Seller will pay to the Buyer an amount equal to
such deficiency by wire transfer or delivery of other
immediately available funds within three business days after
the date on which the Net Book Value finally is determined
pursuant to Section 2(e) above.
The Preliminary Purchase Price as so adjusted is referred to herein as the
"Purchase Price".
3. Representations and Warranties Concerning the Transaction.
(a) Representations and Warranties of the Seller. The Seller represents
and warrants to the Buyer that the statements contained in this Section 3(a)
are correct and complete as of the date of this Agreement and will be correct
and complete as of the Closing Date (as though made then and as though the
Closing Date were substituted for the date of this Agreement throughout this
Section 3(a)) with respect to himself, except as set forth in Schedule 3(a).
(i) Authorization of Transaction. The Seller has full power and
authority to execute and deliver this Agreement and to perform
his obligations hereunder. This Agreement constitutes the valid
and legally binding obligation of the Seller, enforceable in
accordance with its terms and conditions. The Seller need not
give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any Authority in order
to consummate the Transaction.
(ii) Noncontravention. Neither the execution and the delivery of
this Agreement, nor the consummation of the Transaction, will
(A) violate any constitution, statute, regulation, rule,
Order, charge, or other restriction of any Authority to which
the Seller is subject or (B) conflict with, result in a
breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other
arrangement to which the Seller is a party or by which he is
bound or to which any of his assets is subject.
(iii)Brokers' Fees. The Seller has no Liability to pay any fees or
commissions to any broker, finder, or agent with respect to
the Transaction for which the Buyer could become liable or
obligated.
(iv) Investment. The Seller (A) understands that the Securities
have not been, and will not be, registered under the
Securities Act, or under any state securities laws, and are
10<PAGE>
<PAGE>
being offered and sold in reliance upon federal and state
exemptions for transactions not involving any public offering,
(B) is acquiring the Securities solely for his own account
for investment purposes, and not with a view to the
distribution thereof, (C) is a sophisticated investor with
knowledge and experience in business and financial matters,
(D) has received certain information concerning the Buyer
and has had the opportunity to obtain additional information
as desired in order to evaluate the merits and the risks
inherent in holding the Securities, (E) is able to bear the
economic risk and lack of liquidity inherent in holding the
Securities, (F) is an Accredited Investor, and (G) acknowledges
and agrees that each certificate representing Common Shares
to be delivered under this Agreement will be imprinted with
the legend described in Section 6(f)(ii) below.
(v) Company Shares. The Seller holds of record and owns
beneficially the number of Company Shares set forth next to
his name in Section 4(b) of the Disclosure Schedule, free and
clear of any restrictions on transfer (other than any
restrictions under the Securities Act and state securities
laws), Taxes, Security Interests, options, warrants, purchase
rights, contracts, commitments, equities, claims, and demands.
The Seller is not a party to any option, warrant, purchase
right, or other contract or commitment that could require
the Seller to sell, transfer, or otherwise dispose of any
capital stock of the Company (other than this Agreement).
The Seller is not a party to any voting trust, proxy, or other
agreement or understanding with respect to the voting of any
capital stock of the Company.
(b) Representations and Warranties of the Buyer. The Buyer represents
and warrants to the Seller that the statements contained in this Section 3(b)
are correct and complete as of the date of this Agreement and will be correct
and complete as of the Closing Date (as though made then and as though the
Closing Date were substituted for the date of this Agreement throughout this
Section 3(b)), except as set forth in Schedule 3(b).
(i) Organization of the Buyer. The Buyer is a corporation duly
organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation.
(ii) Authorization of Transaction. The Buyer has full power and
authority (including full corporate power and authority) to
execute and deliver this Agreement and to perform its
obligations hereunder. This Agreement constitutes the valid
and legally binding obligation of the Buyer, enforceable in
accordance with its terms and conditions. The Buyer need
not give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any Authority in order
to consummate the Transaction.
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(iii)Noncontravention. Neither the execution and the delivery of
this Agreement (including the Buyer Note), nor the consummation
of the Transaction, will (A) violate any constitution, statute,
regulation, rule, Order, charge, or other restriction of any
Authority to which the Buyer is subject or any provision of
its charter or bylaws or (B) conflict with, result in a breach
of, constitute a default under, result in the acceleration
of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement,
contract, lease, license, instrument, or other arrangement to
which the Buyer is a party or by which it is bound or to which
any of its assets is subject.
(iv) Common Shares. The Common Shares to be issued to the Seller
pursuant to this Agreement, when issued in accordance with
the terms of this Agreement, will be validly issued, fully
paid, and nonassessable.
(v) Brokers' Fees. The Buyer has no Liability to pay any fees or
commissions to any broker, finder, or agent with respect to
the Transaction for which the Seller could become liable or
obligated.
4. Representations and Warranties Concerning the Company. The Seller
represents and warrants to the Buyer that the statements contained in this
Section 4 are correct and complete as of the date of this Agreement and will
be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Section 4), except as set forth in the disclosure schedule
delivered by the Seller to the Buyer on the date hereof and initialed by the
Parties (the "Disclosure Schedule"). Nothing in the Disclosure Schedule shall
be deemed adequate to disclose an exception to a representation or warranty
made herein, however, unless the Disclosure Schedule identifies the exception
with particularity and describes the relevant facts in detail. Without
limiting the generality of the foregoing, the mere listing (or inclusion of
a copy) of a document or other item shall not be deemed adequate to disclose
an exception to a representation or warranty made herein, unless the
representation or warranty has to do with the existence of the document or
other item itself. The Disclosure Schedule will be arranged in paragraphs
corresponding to the lettered and numbered paragraphs contained in this
Section 4.
(a) Organization, Qualification, and Corporate Power. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation. The Company is duly
authorized to conduct business and is in good standing under the laws of
each jurisdiction where such qualification is required. The Company has
full corporate power and authority and all licenses, permits, and
authorizations necessary to carry on the businesses in which it is engaged
and to own and use the properties owned and used by it. Section 4(a) of
the Disclosure Schedule lists the directors and officers of the Company.
The Seller has delivered to the Buyer correct and complete copies of the
charter and bylaws of the Company (as amended to date). The minute books
(containing the records of meetings of the stockholders, the board of
directors, and any committees of the board of directors), the stock
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certificate books, and the stock record books of the Company are correct
and complete. The Company is not in default under or in violation of any
provision of its charter or bylaws.
(b) Capitalization. The entire authorized capital stock of the Company
consists of 250 Company Shares, of which 220 Company Shares are issued and
outstanding and no Company Shares are held in treasury. All of the issued
and outstanding Company Shares have been duly authorized, are validly issued,
fully paid, and nonassessable, and are held of record by the Seller as set
forth in Section 4(b) of the Disclosure Schedule. There are no outstanding
or authorized options, warrants, purchase rights, subscription rights,
conversion rights, exchange rights, or other contracts or commitments that
could require the Company to issue, sell, or otherwise cause to become
outstanding any of its capital stock. There are no outstanding or authorized
stock appreciation, phantom stock, profit participation, or similar rights
with respect to the Company. There are no voting trusts, proxies, or other
agreements or understandings with respect to the voting of the capital
stock of the Company.
(c) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the Transaction, will (i) violate any
constitution, statute, regulation, rule, Order, ruling, charge, or other
restriction of any Authority to which the Company is subject or any
provision of the charter or bylaws of the Company or (ii) conflict with,
result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract,
lease, license, instrument, or other arrangement to which the Company is a
party or by which it is bound or to which any of its assets is subject
(or result in the imposition of any Security Interest upon any of its
assets). The Company does not need to give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any Authority in
order for the Parties to consummate the Transaction.
(d) Brokers' Fees. The Company has no Liability to pay any fees or
commissions to any broker, finder, or agent with respect to the Transaction.
(e) Title to Assets. The Company has good and marketable title to, or
a valid leasehold interest in, the properties and assets used by it,
located on its premises, or shown on the Most Recent Balance Sheet or
acquired after the date thereof, free and clear of all Security Interests,
except for properties and assets disposed of in the Ordinary Course of
Business since the date of the Most Recent Balance Sheet.
(f) Subsidiaries. The Company has no Subsidiaries.
(g) Financial Statements. Attached hereto as Exhibit I are the
following financial statements (collectively the "Financial Statements"):
(i) audited balance sheets and statements of income, statements of retained
earnings, and statements of cash flows as of and for the fiscal years ended
December 31, 1994, December 31, 1995, and December 31, 1996 (the "Most
Recent Fiscal Year End") for the Company; and (ii) unaudited balance sheets
(the "Most Recent Financial Statements") as of and for the six months ended
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June 30, 1997 (the "Most Recent Fiscal Month End") for the Company. The
Financial Statements (including the notes thereto) have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby, present fairly the financial condition of the Company as of
such dates and the results of operations of the Company for such periods,
are correct and complete, and are consistent with the books and records of
the Company (which books and records are correct and complete).
(h) Events Subsequent to Most Recent Fiscal Year End. Since the Most
Recent Fiscal Year End, there has not been any material adverse change in
the business, financial condition, operations, results of operations, or
future prospects of the Company. Without limiting the generality of the
foregoing, since that date:
(i) the Company has not sold, leased, transferred, or assigned
any of its assets, tangible or intangible, other than for a
fair consideration in the Ordinary Course of Business;
(ii) the Company has not entered into any agreement, contract,
lease, or license (or series of related agreements, contracts,
leases, and licenses) either involving more than $10,000 or
outside the Ordinary Course of Business;
(iii)no party (including the Company) has accelerated, terminated,
modified, or cancelled any agreement, contract, lease, or
license (or series of related agreements, contracts, leases,
and licenses) involving more than $10,000 to which the Company
is a party or by which it is bound;
(iv) the Company has not imposed any Security Interest upon any of
its assets, tangible or intangible;
(v) the Company has not made any capital expenditure (or series of
related capital expenditures) either involving more than
$10,000 or outside the Ordinary Course of Business;
(vi) the Company has not made any capital investment in, any loan
to, or any acquisition of the securities or assets of, any
other Person (or series of related capital investments, loans,
and acquisitions) either involving more than $10,000 or
outside the Ordinary Course of Business;
(vii)the Company has not issued any note, bond, or other debt
security or created, incurred, assumed, or guaranteed any
indebtedness for borrowed money or capitalized lease
obligation either involving more than $10,000 singly or
$25,000 in the aggregate;
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(viii)the Company has not delayed or postponed the payment of
accounts payable and other Liabilities outside the
Ordinary Course of Business;
(ix) the Company has not cancelled, compromised, waived, or
released any right or claim (or series of related rights and
claims);
(x) the Company has not granted any license or sublicense of any
rights under or with respect to any Intellectual Property;
(xi) there has been no change made or authorized in the charter or
bylaws of the Company;
(xii)the Company has not issued, sold, or otherwise disposed of
any of its capital stock, or granted any options, warrants,
or other rights to purchase or obtain (including upon
conversion, exchange, or exercise) any of its capital stock;
(xiii)except as expressly provided in this Agreement, the Company
has not declared, set aside, or paid any dividend or made
any distribution with respect to its capital stock (whether
in cash or in kind) or redeemed, purchased, or otherwise
acquired any of its capital stock;
(xiv)the Company has not experienced any damage, destruction, or
loss (whether or not covered by insurance) to its property;
(xv) except as expressly provided in this Agreement, the Company
has not made any loan to, or entered into any other
transaction with, any of its directors, officers, and
employees outside the Ordinary Course of Business;
(xvi)except as expressly provided in this Agreement, the Company
has not entered into any employment contract or collective
bargaining agreement, written or oral, or modified the terms
of any existing such contract or agreement;
(xvii)the Company has not granted any increase in the base
compensation of any of its directors, officers, and employees
outside the Ordinary Course of Business;
(xviii)the Company has not adopted, amended, modified, or
terminated any bonus, profit-sharing, incentive, severance,
or other plan, contract, or commitment for the benefit of
any of its directors, officers, and employees (or taken
any such action with respect to any other Employee Benefit
Plan);
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(xix)the Company has not made any other change in employment terms
for any of its directors, officers, and employees outside the
Ordinary Course of Business;
(xx) the Company has not made or pledged to make any charitable or
other capital contribution outside the Ordinary Course of
Business;
(xxi)there has not been any other material occurrence, event,
incident, action, failure to act, or transaction outside the
Ordinary Course of Business involving the Company; and
(xxii)the Company has not committed to any of the foregoing.
(i) Undisclosed Liabilities. The Company has no Liability (and there is
no Basis for any present or future Action against it giving rise to any
Liability), except for (i) Liabilities set forth on the face of the Most
Recent Balance Sheet (rather than in any notes thereto) and (ii) Liabilities
which have arisen after the Most Recent Fiscal Month End in the Ordinary
Course of Business (none of which results from, arises out of, relates to,
is in the nature of, or was caused by any breach of contract, breach of
warranty, tort, infringement, or violation of law).
(j) Legal Compliance.
(i) Each of the Company and its predecessors and Affiliates has
complied with all applicable laws (including rules,
regulations, codes, plans, Orders, and charges thereunder)
of Authorities, and no Action or notice has been filed or
commenced against any of them alleging any failure so
to comply.
(ii) Section 4(j)(ii) of the Disclosure Schedule lists all types
of material licenses, certifications, permits, pending
applications, consents, approvals and authorizations of or
from any Authority, used in or otherwise necessary or
appropriate for the operation or conduct of the Company's
business (collectively, the "Permits"). No other Permits
are required by the Company for the conduct of its business.
The Company has complied in all material respects with all
conditions and requirements imposed by the Permits. The
Company owns and has the right to use the Permits in
accordance with the terms thereof, and each Permit is valid
and in full force and effect.
(iii)No officer or director of the Company has, directly or
indirectly, given or agreed to give any significant rebate,
gift or similar benefit to any supplier, customer,
governmental employee or other Person who was, is or may be
in a position to help or hinder the Company (or assist in
16<PAGE>
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connection with any actual or proposed transaction) which
(i) could subject the Company to any damage or penalty in
any Action, or (ii) if not continued in the future, would
result in a material adverse effect to the Company.
(iv) The Company is not obligated and will not become obligated to
repay any amounts previously paid or currently owing to the
Company by any governmental or other third party reimbursement
agency or program.
(k) Tax Matters.
(i) The Company has filed all Tax Returns that it has been required
to file. All such Tax Returns were correct and complete in
all respects. All Taxes owed by the Company (whether or not
shown on any Tax Return) have been paid. The Company
currently is not the beneficiary of any extension of time
within which to file any Tax Return. No claim has ever been
made by an Authority in a jurisdiction where the Company does
not file Tax Returns that it is or may be subject to taxation
by that jurisdiction. There are no Security Interests on any
of the assets of the Company that arose in connection with any
failure (or alleged failure) to pay any Tax.
(ii) The Company has withheld and timely paid all Taxes required
to have been withheld and paid in connection with amounts paid
or owing to any employee, independent contractor, creditor,
stockholder, or other third party.
(iii)Neither Seller nor any director or officer (or employee
responsible for Tax matters) of the Company expects any
authority to assess any additional Taxes for any period for
which Tax Returns have been filed. There is no dispute or
claim concerning any Tax Liability of the Company either
(A) claimed or raised by any Authority in writing or (B)
as to which the Seller and the directors and officers (and
employees responsible for Tax matters) of the Company has
Knowledge based upon personal contact with any agent of such
Authority. Section 4(k) of the Disclosure Schedule lists all
federal, state, local, and foreign income Tax Returns filed
with respect to the Company for taxable periods ended on or
after December 31, 1993, indicates those Tax Returns that
have been audited, and indicates those Tax Returns that
currently are the subject of audit. The Seller has delivered
to the Buyer correct and complete copies of all federal
income Tax Returns, examination reports, and statements of
deficiencies assessed against or agreed to by the Company
since December 31, 1993.
(iv) The Company has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with
respect to a Tax assessment or deficiency.
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(v) The Company has disclosed on its federal income Tax Returns
all positions taken therein that could give rise to a
substantial understatement of federal income Tax within the
meaning of Code Section 6662. The Company is not a party to
any Tax allocation or sharing agreement. The Company (A) has
not been a member of an Affiliated Group filing a consolidated
federal income Tax Return and (B) has no Liability for the
Taxes of any Person (other than the Company) under Reg.
Section 1.1502-6 (or any similar provision of state, local,
or foreign law), as a transferee or successor, by contract,
or otherwise.
(vi) Section 4(k)(vi) of the Disclosure Schedule sets forth the
following information with respect to the Company as of the
most recent practicable date (as well as on an estimated pro
forma basis as of the Closing giving effect to the consummation
of the Transaction): (A) the basis of the Company in its
assets; and (B) the amount of any net operating loss, net
capital loss, unused investment or other credit, unused
foreign tax, or excess charitable contribution allocable to
the Company.
(vii)The unpaid Taxes of the Company (A) did not, as of the Most
Recent Fiscal Month End, exceed the reserve for Tax Liability
(rather than any reserve for deferred Taxes established to
reflect timing differences between book and Tax income) set
forth on the face of the Most Recent Balance Sheet (rather
than in any notes thereto) and (B) do not exceed that reserve
as adjusted for the passage of time through the Closing Date
in accordance with the past custom and practice of the Company
in filing its Tax Returns.
(viii)The Company has been a validly electing S corporation within
the meaning of Code Sections 1361 and 1362 at all times since
January 1, 1997 and the Company will be an S corporation up
to and including the date before the Closing Date. No
election has been or will be made under Code Section
338(h)(10).
(l) Real Property.
(i) The Company owns no real property.
(ii) Section 4(l)(ii) of the Disclosure Schedule lists and
describes briefly all real property leased or subleased to
the Company. The Seller has delivered to the Buyer correct
and complete copies of the leases and subleases listed in
Section 4(l)(ii) of the Disclosure Schedule (as amended to
date). With respect to each lease and sublease listed in
Section 4(l)(ii) of the Disclosure Schedule:
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(A) the lease or sublease is legal, valid, binding,
enforceable, and in full force and effect;
(B) the lease or sublease will continue to be legal, valid,
binding, enforceable, and in full force and effect on
identical terms following the consummation of the
Transaction;
(C) no party to the lease or sublease is in breach or
default, and no event has occurred which, with notice
or lapse of time, would constitute a breach or default
or permit termination, modification, or acceleration
thereunder;
(D) no party to the lease or sublease has repudiated any
provision thereof;
(E) there are no disputes, oral agreements, or forbearance
programs in effect as to the lease or sublease;
(F) with respect to each sublease, the representations and
warranties set forth in subsections (A) through (E)
above are true and correct with respect to the
underlying lease;
(G) the Company has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered in any manner
any interest in the leasehold or subleasehold;
(H) all facilities leased or subleased thereunder have
received all approvals of Authorities (including licenses
and permits) required in connection with the operation
thereof and have been operated and maintained in
accordance with applicable laws, rules, and regulations;
(I) all facilities leased or subleased thereunder are
supplied with utilities and other services reasonably
necessary and desirable for the operation of said
facilities.
(m) Intellectual Property.
(i) Section 4(m) of the Disclosure Schedule sets forth a list of
all trademarks, trade names, services marks, logos and
copyrights owned, controlled, licensed or used by the Company.
The Company has delivered or made available to the Buyer
true and complete copies (or descriptions) of all of such
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Intellectual Property rights. All trademarks listed on the
Disclosure Schedule are in full force, there is no third
party claim affecting the use or ownership thereof, and all
applications listed therein as pending have been prosecuted
in good faith as required by law and are in good standing.
The Company owns or possesses adequate licenses or other
rights to use all Intellectual Property of the Company.
(ii) All of the Company's rights in the Intellectual Property
rights, licenses, contracts and other agreements listed or
described on the Disclosure Schedule are in full force and
effect and there is no third party claim affecting the use
thereof. The Company is not in default under any such
license, contract or other agreement and there are no defaults
by any other party to any such license, contract or other
agreement. The Company has not granted any Person any right
to use any of the Intellectual Property used or intended to
be used in or related to the Company's Business for any
purpose.
(iii)None of the Company's rights in the Intellectual Property
listed or described on the Disclosure Schedule is involved
in any interference or opposition proceeding, and there has
been no notice received by the Company that any such
proceeding will hereafter be commenced. The Company has used
all commercially reasonable efforts to protect the
Intellectual Property used or intended to be used in or
related to the Company's business against infringement by
others and to preserve its Confidential Information and none
of such Intellectual Property is being infringed by others.
There has been no infringement by the Company with respect
to any Intellectual Property rights of others.
(n) Tangible Assets. The Company owns or leases all buildings,
machinery, equipment, and other tangible assets necessary for the conduct of
its businesses as presently conducted. Each such tangible asset is free
from material defects (patent and latent), has been maintained in accordance
with normal industry practice, is in good operating condition and repair
(subject to normal wear and tear), and is suitable for the purposes for
which it presently is used. A defect shall be deemed "material" if the
cost of repair or replacement exceeds $5,000.
(o) Inventory. The inventory of the Company consists of raw materials,
packaging, and supplies, manufactured and purchased parts, work in process,
and finished goods, all of which is merchantable and fit for the purpose
for which it was procured or manufactured, and none of which is obsolete,
damaged, or defective. The inventories of the Company are at normal and
adequate levels for the continuation of business in the Ordinary Course of
Business. All work in progress can be completed for sale in the Ordinary
Course of Business. The Company owns all its inventory free and clear of
all Security Interests, except inventory subject to the agreements described
in Section 4(p)(xii). Under each such agreement, the Company may return all
inventory without being obligated to pay any penalty whatsoever.
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(p) Contracts. Section 4(p) of the Disclosure Schedule lists the
following contracts and other agreements to which the Company is a party:
(i) any agreement (or group of related agreements) for the lease
of personal property to or from any Person providing for lease
payments in excess of $1,000 per annum;
(ii) any agreement (or group of related agreements) for the
purchase or sale of raw materials, commodities, supplies,
products, or other personal property, or for the furnishing or
receipt of services, the performance of which will extend over
a period of more than one year, result in a material loss to
any of the Company, or involve consideration in excess of
$5,000;
(iii)any agreement concerning a partnership or joint venture;
(iv) any agreement (or group of related agreements) under which it
has created, incurred, assumed, or guaranteed any indebtedness
for borrowed money, or any capitalized lease obligation, in
excess of $5,000 or under which it has imposed a Security
Interest on any of its assets, tangible or intangible;
(v) any agreement concerning confidentiality or noncompetition;
(vi) any agreement with the Seller;
(vii)any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other
material plan or arrangement for the benefit of its current
or former directors, officers, and employees;
(viii)any collective bargaining agreement;
(ix) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing
annual compensation in excess of $15,000 or providing
severance benefits;
(x) any agreement under which it has advanced or loaned any
amount to any of its directors, officers, and employees;
(xi) any agreement under which the consequences of a default or
termination could have a material adverse effect on the
business, financial condition, operations, results of
operations, or future prospects of the Company; or
(xii)any agreement for the consignment of inventory;
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(xiii)any other agreement (or group of related agreements) the
performance of which involves consideration in excess of
$5,000.
The Seller has delivered to the Buyer a correct and complete copy of each
written agreement listed in Section 4(p) of the Disclosure Schedule (as
amended to date) and a written summary setting forth the terms and conditions
of each oral agreement referred to in Section 4(p) of the Disclosure
Schedule. With respect to each such agreement: (A) the agreement is legal,
valid, binding, enforceable, and in full force and effect; (B) the agreement
will continue to be legal, valid, binding, enforceable, and in full force
and effect on identical terms following the consummation of the Transaction;
(C) no party is in breach or default, and no event has occurred which with
notice or lapse of time would constitute a breach or default, or permit
termination, modification, or acceleration, under the agreement; (D) no
party has repudiated any provision of the agreement; and (E) with respect
to any agreement described in Section 4(p)(iv), such agreement may be
prepaid without penalty or payment of any premium.
(q) Receivables. All Receivables of the Company are reflected
properly on its books and records, are valid receivables subject to no
setoffs or counterclaims, are current and collectible, and will be
collected in accordance with their terms at their recorded amounts,
subject only to the reserve for bad debts set forth on the face of the
Most Recent Balance Sheet (rather than in any notes thereto) as adjusted
for the passage of time through the Closing Date in accordance with the
past custom and practice of the Company.
(r) Powers of Attorney. There are no outstanding powers of attorney
executed on behalf of the Company.
(s) Insurance. Section 4(s) of the Disclosure Schedule sets forth
the following information with respect to each insurance policy (including
policies providing property, casualty, liability, and workers' compensation
coverage and bond and surety arrangements) to which the Company has been a
party, a named insured, or otherwise the beneficiary of coverage at any time
within the past three years:
(i) the name, address, and telephone number of the agent;
(ii) the name of the insurer, the name of the policyholder, and
the name of each covered insured;
(iii)the policy number and the period of coverage;
(iv) the scope (including an indication of whether the coverage
was on a claims made, occurrence, or other basis) and amount
(including a description of how deductibles and ceilings are
calculated and operate) of coverage; and
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(v) a description of any retroactive premium adjustments or other
loss-sharing arrangements.
With respect to each such insurance policy: (A) the policy is legal, valid,
binding, enforceable, and in full force and effect; (B) the policy will
continue to be legal, valid, binding, enforceable, and in full force and
effect on identical terms following the consummation of the Transaction;
(C) neither the Company nor any other party to the policy is in breach or
default (including with respect to the payment of premiums or the giving
of notices), and no event has occurred which, with notice or the lapse of
time, would constitute such a breach or default, or permit termination,
modification, or acceleration, under the policy; and (D) no party to the
policy has repudiated any provision thereof. The Company has been covered
during the past 10 years by insurance in scope and amount customary and
reasonable for the businesses in which it has engaged during the
aforementioned period. Section 4(s) of the Disclosure Schedule describes
any self-insurance arrangements affecting the Company.
(t) Litigation. Section 4(t) of the Disclosure Schedule sets forth
each instance in which the Company (i) is subject to any outstanding Order
or charge or (ii) is a party or, to the Knowledge of the Seller and the
directors and officers (and employees with responsibility for litigation
matters) of the Company, is threatened to be made a party to any Action.
None of the Actions set forth in Section 4(t) of the Disclosure Schedule
could result in any material adverse change in the business, financial
condition, operations, results of operations, or future prospects of the
Company. None of the Seller and the directors and officers (and employees
with responsibility for litigation matters) of the Company has any reason
to believe that any such Action may be brought or threatened against the
Company. To the knowledge of the Seller and the directors and officers
(and employees with responsibility for litigation matters) of the Company,
there is no Basis for the commencement of any Action against the Company.
(u) Product Warranty. Each product manufactured, sold, leased, or
delivered by the Company has been in conformity with all applicable
contractual commitments and all express and implied warranties, and the
Company has no Liability (and there is no Basis for any present or future
Action against the Company giving rise to any Liability) for replacement or
repair thereof or other damages in connection therewith. No product
manufactured, sold, leased, or delivered by the Company is subject to any
guaranty, warranty, or other indemnity beyond the applicable standard
terms and conditions of sale or lease. Section 4(u) of the Disclosure
Schedule includes copies of the standard terms and conditions of sale or
lease for each of the Company (containing applicable guaranty, warranty,
and indemnity provisions).
(v) Product Liability. The Company has no Liability (and there is
no Basis for any present or future Action against the Company giving rise
to any Liability) arising out of any injury to individuals or property as
a result of the ownership, possession, or use of any product manufactured,
sold, leased, or delivered by the Company.
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(w) Employees and Optometrists.
(i) The Company is not a party to or bound by any collective
bargaining agreement, nor has the Company experienced any
strikes, grievances, claims of unfair labor practices, or
other collective bargaining disputes. The Company has not
committed any unfair labor practice. None of the Seller and
the directors and officers (and employees with responsibility
for employment matters) of the Company has any Knowledge of
any organizational effort presently being made or threatened
by or on behalf of any labor union with respect to employees
of the Company.
(ii) Section 4(w)(ii) of the Disclosure Schedule lists all
Employees, sets forth their wages, and describes any written
or oral employment arrangements between the Company and any
Employee. The Employees are all the current employees of
the Company as of the date of this Agreement. The Employees
will, to the Seller's knowledge, be available for employment
by the Company as of the Closing Date. No Employee has a
written employment agreement with the Company which is not
terminable on notice by the Company without cost or other
liability to the Company. No Employee has indicated that
he or she intends to terminate his or her employment with
the Company or seek a material change in his or her duties
or status with the Company.
(iii)Section 4(w)(iii) of the Disclosure Schedule lists all
Optometrists. No Optometrist is employed by the Company or
is deemed by any Authority to be employed by the Company and
there is no Basis for any Authority to make such a claim.
No Optometrist has indicated to the Company that he or she
intends to terminate his or her Optometric Agreement or to
renegotiate its terms. Section 4(w)(iii) of the Disclosure
Schedule lists all Optometric Agreements. Each Optometric
Agreement is valid and in full force and effect in accordance
with its terms. A true and correct copy of the standard
form of Optometric Agreement is attached and made part of
Exhibit J. Section 4(w)(iii) of the Disclosure Schedule
accurately and completely sets forth for each Optometric
Agreement, (i) the parties to the Optometric Agreement,
(ii) the date of its execution and expiration, (iii) any
options to renew, (iv) the location of the property which
is the subject of the Optometric Agreement, (v) rent and
other fees payable thereunder, and (vi) any terms and
provisions which differ from those contained in the standard
form of Optometric Agreement. There has not been any
amendment, modification, or variation of any of the
Optometric Agreements other than as reflected on Section
4(w)(iii) of the Disclosure Schedule and each Optometric
Agreement truly, accurately, and completely sets forth all
terms and conditions of the entire contractual relationship
between the Company and the Optometrist. There is not under
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any Optometric Agreement any default (or any claim of default)
by any party to such Optometric Agreement, or any event of
default or event which with notice or lapse of time or both
would constitute a default by such party and in respect of
which such party has not taken adequate steps to prevent a
default on its part from occurring. The Company has not
received (and has no notice of) any exercise (by any Person
(including any Optometrist)) of a right to cancel or terminate
(whether or not arising out of an alleged default) any
Optometric Agreement. The interest of the Company in and
under each Optometric Agreement is unencumbered by any
Security Interest and is subject to no present Action or
threatened Action. The Company has performed all the
obligations required to be performed by it under each of the
Optometric Agreements.
(x) Employee Benefits.
(i) Section 4(x) of the Disclosure Schedule contains a complete
and correct list of each Employee Benefit Plan covering any
present or former employees of the Company and each other
material plan or arrangement providing for severance
benefits, deferred compensation, fringe benefits, pension
benefits, insurance benefits, profit sharing, retirement
benefits, stock purchases, stock options, incentives, bonuses,
vacations, disability benefits, hospitalization benefits,
medical insurance, life insurance and other employee benefit
plans, programs or arrangements or a similar type of benefit
or compensation covering any present or former employee of
the Company (an "Employee Plan"), whether or not such Employee
Plan has been terminated. The Company has provided the Buyer
with complete and correct copies of the material documents
comprising each Employee Plan and (where applicable) the most
recent Form 5500 Annual Report and the summary plan description
for each Employee Plan.
(ii) Each Employee Plan which is subject to ERISA conforms in all
material respects to, and its operation and administration are
in all material respects in compliance with, all applicable
requirements of ERISA, the Code, and other applicable laws.
Each Employee Plan which is intended to comply with Code
Section 401(a) has received a determination letter from the
Internal Revenue Service to the effect that such Employee
Plan is qualified under Code Section 401 and that any trust
maintained pursuant thereto is exempt from federal income
taxes under Code Section 501 and there is no reasonable
Basis for the loss of such qualification or exemption or for
any Liability with respect to such Employee Plan. There has
been no Prohibited Transaction with respect to any Employee
Plan. There are no Actions pending (other than routine claims
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for benefits) or threatened against or with respect to any
Employee Plan or against the assets of any Employee Plan. No
Fiduciary has any Liability for breach of fiduciary duty or
any other failure to act or comply in connection with the
administration or investment of the assets of any Employee
Plan. No Employee Plan is under audit or investigation by
the Internal Revenue Service or the Department of Labor, or
any other Authority, and no such completed audit, if any,
has resulted in the imposition of any Tax, interest or
penalty.
(iii)The Company has not maintained or contributed to, and has not
been required to maintain or contribute to, any Employee
Plan which is intended to be qualified as an Employee Pension
Benefit Plan.
(iv) None of the Employee Plans is an Employee Welfare Benefit
Plan.
(v) The Company does not contribute to, never has contributed to,
and never has been required to contribute to any Multiemployer
Plan and has no Liability under any Multiemployer Plan.
(vi) The Company does not maintain, never has maintained or
contributes, never has contributed, and never has been
required to contribute to any Employee Welfare Benefit Plan
providing medical, health, or life insurance or other
welfare-type benefits for current or future retired or
terminated employees, their spouses, or their dependents
(other than in accordance with COBRA).
(vii)The consummation of the Transaction will not alone give rise
to any Liability for any employee benefits, including without
limitation, liability for severance pay, unemployment
compensation, termination pay or withdrawal liability, or
accelerate the time of payment or vesting or increase the
amount of compensation or benefits due to any current or
former employee of the Company.
(y) Guaranties. Except for the Company Guarantee, the Company is not a
guarantor or otherwise liable for any Liability (including indebtedness) of
any other Person.
(z) Environmental Matters.
(i) Each of the Company and its respective predecessors and
Affiliates has complied and is in compliance with all
Environmental Requirements.
(ii) Without limiting the generality of the foregoing, each of the
Company and its Affiliates has obtained and complied with,
and is in compliance with, all permits, licenses and other
authorizations that are required pursuant to Environmental
Requirements for the occupation of its facilities and
the operation of its business; a list of all such permits,
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licenses and other authorizations is set forth in Section
4(z)(ii) of the Disclosure Schedule.
(iii)Neither the Company nor its predecessors or Affiliates has
received any written or oral notice, report or other
information regarding any actual or alleged violation of
Environmental Requirements, or any Liabilities, including
any investigatory, remedial or corrective obligations,
relating to any of them or its facilities arising under
Environmental Requirements.
(iv) None of the following exists or has existed at any property
or facility owned or operated by the Company: (1) underground
storage tanks, (2) asbestos-containing material in any form
or condition, (3) materials or equipment containing
polychlorinated biphenyls, or (4) landfills, surface
impoundments, or disposal areas.
(v) None of the Company or its predecessors or Affiliates has
treated, stored, disposed of, arranged for or permitted the
disposal of, transported, handled, or released any substance,
including without limitation any hazardous substance, or
owned or operated any property or facility (and no such
property or facility is contaminated by any such substance)
in a manner that has given or would give rise to Liabilities,
including any Liability for response costs, corrective
action costs, personal injury, property damage, natural
resources damages or attorney fees, pursuant to the
Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), the Solid
Waste Disposal Act, as amended ("SWDA") or any other
Environmental Requirements.
(vi) Neither this Agreement nor the consummation of the
Transaction will result in any obligations for site
investigation or cleanup, or notification to or consent of
government agencies or third parties, pursuant to any of
the so-called "transaction-triggered" or "responsible
property transfer" Environmental Requirements.
(vii)Neither the Company, nor any of its predecessors or
Affiliates has, either expressly or by operation of law,
assumed or undertaken any Liability, including without
limitation any obligation for corrective or remedial action,
of any other Person relating to Environmental Requirements.
(viii)No facts, events or conditions relating to the past or
present facilities, properties or operations of the Company,
or any of its predecessors or Affiliates, will prevent,
hinder or limit continued compliance with Environmental
Requirements, give rise to any investigatory, remedial or
corrective obligations pursuant to Environmental Requirements,
or give rise to any other Liabilities pursuant to
Environmental Requirements, including without limitation
27<PAGE>
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any relating to onsite or offsite releases or threatened
releases of hazardous materials, substances or wastes,
personal injury, property damage or natural resources damage.
(aa) Certain Business Relationships with the Company.
(i) The Seller has not been involved in any business arrangement
or relationship with the Company within the past 12 months,
and the Seller does not own any asset, tangible or intangible,
which is used in the business of the Company.
(ii) Section 4(aa)(ii) of the Disclosure Schedule sets forth a
list of the ten largest customers and ten largest suppliers
of the Company for the most recent twelve-month period,
together with the amount of sales or purchases attributable
to such customers or suppliers expressed in dollars. No
customer or supplier which was significant to the Company
during the past three years, has terminated, materially
reduced or threatened to terminate or materially reduce its
purchases from or provision of products or services to the
Company, as the case may be.
(bb) Disclosure. The representations and warranties contained in this
Section 4 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Section 4 not misleading.
5. Pre-Closing Covenants. The Parties agree as follows with respect to
the period between the execution of this Agreement and the Closing.
(a) General. Each of the Parties will use his or its best efforts to
take all action and to do all things necessary, proper, or advisable in
order to consummate and make effective the Transaction (including
satisfaction, but not waiver, of the closing conditions set forth in
Section 7 below).
(b) Notices and Consents. The Seller will cause the Company to give
any notices to third parties, and will cause the Company to use its best
efforts to obtain any third party consents, that the Buyer reasonably may
request in connection with the matters referred to in Section 4(c) above.
Each of the Parties will (and the Seller will cause the Company to) give
any notices to, make any filings with, and use its best efforts to obtain
any authorizations, consents, and approvals of Authorities in connection
with the matters referred to in Section 3(a)(i), Section 3(b)(ii), and
Section 4(c) above.
(c) Operation of Business. The Seller will not cause or permit the
Company to, and the Company shall not, engage in any practice, take any
action, or enter into any transaction outside the Ordinary Course of
Business. Without limiting the generality of the foregoing, the Seller
will not, except as provided in Section 5(h) below, cause or permit the
Company to (i) declare, set aside, or pay any dividend or make any
distribution with respect to its capital stock or redeem, purchase, or
28<PAGE>
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otherwise acquire any of its capital stock, or (ii) otherwise engage in
any practice, take any action, or enter into any transaction of the sort
described in Section 4(h) above.
(d) Preservation of Business. The Seller will cause the Company to
keep its business and properties substantially intact, including its
present operations, physical facilities, working conditions, and
relationships with lessors, licensors, suppliers, customers, and employees.
(e) Full Access. The Seller will permit, and the Seller will cause
the Company to permit, representatives of the Buyer to have full access at
all reasonable times, and in a manner so as not to interfere with the
normal business operations of the Company, to all premises, properties,
personnel, books, records (including Tax records), contracts, and documents
of or pertaining to the Company.
(f) Notice of Developments. The Seller will give prompt written
notice to the Buyer of any material adverse development causing a breach of
any of the representations and warranties in Section 4 above. Each Party
will give prompt written notice to the other Party of any material adverse
development causing a breach of any of his or its own representations and
warranties in Section 3 above. No disclosure by any Party pursuant to this
Section 5(f), however, shall be deemed to amend or supplement Schedule 3(a),
Schedule 3(b), or the Disclosure Schedule or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant.
(g) Exclusivity. The Seller will not (and the Seller will not cause
or permit the Company to) (i) solicit, initiate, or encourage the submission
of any proposal or offer from any Person relating to the acquisition of any
capital stock or other voting securities, or any substantial portion of the
assets, of the Company (including any acquisition structured as a merger,
consolidation, or share exchange) or (ii) participate in any discussions or
negotiations regarding, furnish any information with respect to, assist or
participate in, or facilitate in any other manner any effort or attempt
by any Person to do or seek any of the foregoing. The Seller will not vote
his Company Shares in favor of any such acquisition structured as a merger,
consolidation, or share exchange. The Seller will notify the Buyer
immediately if any Person makes any proposal, offer, inquiry, or contact
with respect to any of the foregoing.
(h) Cash Payments and Other Distributions.
(i) Immediately prior to the Closing, the Seller will cause the
Company to make the following payments to the Seller:
(A) a cash dividend equal to $14,000.
(B) a cash dividend equal to (x) the amount then owing under
the Seller's Note Payable plus (y) $134,840.
(C) a cash payment in full satisfaction of the Seller's
Note Receivable.
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(ii) Immediately prior to the Closing, the Seller will make a cash
payment to the Company in full satisfaction of the Seller's
Note Payable.
(iii)After the payments described in this Section 5(h) have been
made, the Company will deliver the Seller's Note Payable,
marked "Paid in Full" to the Seller, and the Seller will
deliver the Seller's Note Receivable, marked "Paid in
Full" to the Company.
(iv) Immediately prior to the Closing, the Seller shall (A) pay
and discharge the Neumann Indebtedness in full and (B) cause
the Bank to release and terminate the Company Guarantee and
any security agreement and security with respect thereto.
(v) Immediately prior to the Closing, the Company shall assign
the Policy to the Seller, by instrument reasonably
satisfactory to the Parties.
6. Post-Closing Covenants. The Parties agree as follows with respect
to the period following the Closing.
(a) General. In case at any time after the Closing any further action
is necessary or desirable to carry out the purposes of this Agreement, each
of the Parties will take such further action (including the execution and
delivery of such further instruments and documents) as any other Party
reasonably may request, all at the sole cost and expense of the requesting
Party (unless the requesting Party is entitled to indemnification therefor
under Section 8 below). The Seller acknowledges and agrees that from and
after the Closing the Buyer will be entitled to possession of all documents,
books, records (including Tax records), agreements, and financial data of
any sort relating to the Company.
(b) Litigation Support. In the event and for so long as any Party
actively is contesting or defending against any Action in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or
prior to the Closing Date involving the Company, each of the Parties will
cooperate with him or it and his or its counsel in the contest or defense,
make available their personnel, and provide such testimony and access
to their books and records as shall be necessary in connection with the
contest or defense, all at the sole cost and expense of the contesting
or defending Party (unless the contesting or defending Party is entitled
to indemnification therefor under Section 8 below).
(c) Transition. The Seller will not take any action that is designed
or intended to have the effect of discouraging any lessor, licensor,
customer, supplier, or other business associate of the Company from
maintaining the same business relationships with the Company after the
Closing as it maintained with the Company prior to the Closing. The Seller
will refer all customer inquiries relating to the business of the Company
to the Buyer from and after the Closing.
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(d) Confidentiality. The Seller will treat and hold the Confidential
Information as confidential, refrain from using any of the Confidential
Information except in connection with this Agreement, and deliver promptly
to the Buyer or destroy, at the request and option of the Buyer, all
tangible embodiments (and all copies) of the Confidential Information
which are in his possession. In the event that the Seller is requested or
required (by oral question or request for information or documents in any
legal proceeding, interrogatory, subpoena, civil investigative demand, or
similar process) to disclose any Confidential Information, the Seller will
notify the Buyer promptly of the request or requirement so that the Buyer
may seek an appropriate protective order or waive compliance with the
provisions of this Section 6(d). If, in the absence of a protective order
or the receipt of a waiver hereunder, the Seller is, on the advice of
counsel, compelled to disclose any Confidential Information to any tribunal
or else stand liable for contempt, the Seller may disclose the Confidential
Information to the tribunal; provided, however, that the Seller shall use
his reasonable best efforts to obtain, at the reasonable request of the
Buyer, an order or other assurance that confidential treatment will be
accorded to such portion of the Confidential Information required to be
disclosed as the Buyer shall designate. The foregoing provisions shall not
apply to any Confidential Information which is generally available to the
public immediately prior to the time of disclosure.
(e) Company Indebtedness. Immediately after the Closing, the Buyer
shall cause the Company to (i) pay and discharge the Company Indebtedness
in full and (ii) cause the Bank to release and terminate the Neumann
Guarantee.
(f) Securities.
(i) The Buyer Note will be imprinted with a legend substantially
in the following form:
The payment of principal and interest on this Note is subject
to certain recoupment provisions set forth in a Stock
Purchase Agreement dated as of September 15, 1997 (the
"Purchase Agreement") between the issuer of this Note and
the person to whom this Note originally was issued. This
Note was originally issued on October 8, 1997, and has not
been registered under the Securities Act of 1933, as amended.
The transfer of this Note is subject to certain restrictions
set forth in the Purchase Agreement. The issuer of this Note
will furnish a copy of these provisions to the holder hereof
without charge upon written request.
(ii) Each certificate representing Common Shares delivered under
this Agreement will be imprinted with a legend substantially
in the following form:
The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Federal Act"), or the securities laws of any state or other
jurisdiction, but have been acquired by the registered owner
31<PAGE>
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hereof for purposes of investment and in reliance on the
statutory exemptions contained in Sections 3(b) and 4(2) of
the Federal Act, in Section 10-5-9(13) of the Georgia
Securities Act of 1973 and in comparable exemptions in the
securities laws of other jurisdictions to the extent
applicable. Such shares may not be sold, pledged, transferred
or assigned except in a transaction which is exempt under such
Federal Act and such other laws, or pursuant to an effective
registration statement thereunder or in a transaction
otherwise in compliance with such Act and other laws, and in
the case of an exemption or other such transaction otherwise
in compliance, unless the Company has received an opinion of
counsel, satisfactory to it, or a communication from the
Securities and Exchange Commission and any other governmental
authority empowered to interpret the securities laws of
states or other jurisdictions that are applicable to such
transaction, that such transaction does not require
registration of the shares under the Federal Act or under
such other laws, as the case may be.
(iii)Each holder desiring to transfer a Security first must furnish
the Buyer with (i) a written opinion reasonably satisfactory
to the Buyer in form and substance from counsel reasonably
satisfactory to the Buyer by reason of experience to the
effect that the holder may transfer the Security as desired
without registration under the Securities Act and (ii) a
written undertaking executed by the desired transferee
reasonably satisfactory to the Buyer in form and substance
agreeing to be bound by the restrictions on transfer
contained herein and, with respect to the Buyer Note, the
recoupment provisions contained herein.
7. Conditions to Obligation to Close.
(a) Conditions to Obligation of the Buyer. The obligation of the Buyer
to consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section 3(a)
and Section 4 above shall be true and correct in all material
respects at and as of the Closing Date;
(ii) the Seller shall have performed and complied with all of his
covenants hereunder in all material respects through the
Closing;
(iii)the Company shall have procured all of the third party
consents specified in Section 5(b) above;
(iv) no action, suit, or proceeding shall be pending or threatened
before any Authority wherein an unfavorable Order or charge
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would (A) prevent consummation of the Transaction, (B) cause
the Transaction to be rescinded following consummation, (C)
affect adversely the right of the Buyer to own the Company
Shares and to control the Company, or (D) affect adversely
the right of the Company to own its assets and to operate
its businesses (and no such Order or charge shall be in
effect);
(v) the Seller shall have delivered to the Buyer a certificate,
in the form of Exhibit K, to the effect that each of the
conditions specified above in Section 7(a)(i)-(iv) is
satisfied in all respects;
(vi) the relevant parties shall have entered into the Ancillary
Agreements and the same shall be in full force and effect;
(vii)the Buyer shall have received from counsel to the Seller an
opinion in form and substance as set forth in Exhibit L
attached hereto, addressed to the Buyer, and dated as of
the Closing Date;
(viii)the Buyer shall have received the resignations, effective
as of the Closing, of each director and officer of the
Company;
(ix) the Buyer shall have received such environmental site audits
or assessments of the operations and facilities of the
Company (including the Headquarters) as the Buyer considers
necessary or desirable, and the Buyer shall be reasonably
satisfied with such site audits and assessments;
(x) the leases described in Schedule 7(a)(x) (the "Designated
Leases") shall have been amended by instruments in form and
substance acceptable to the Buyer;
(xi) the Board of Directors of the Buyer shall have approved this
Agreement and the Transaction.
(xii)all actions to be taken by the Seller in connection with
consummation of the Transaction and all certificates,
opinions, instruments, and other documents required to
effect the Transaction (including the Disclosure Schedule)
will be reasonably satisfactory in form and substance to the
Buyer.
The Buyer may waive any condition specified in this Section 7(a) if it
executes a writing so stating at or prior to the Closing.
(b) Conditions to Obligation of the Seller. The obligation of the
Seller to consummate the transactions to be performed by it in connection
with the Closing is subject to satisfaction of the following conditions:
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(i) the representations and warranties set forth in Section 3(b)
above shall be true and correct in all material respects at
and as of the Closing Date;
(ii) the Buyer shall have performed and complied with all of its
covenants hereunder in all material respects through the
Closing;
(iii)no action, suit, or proceeding shall be pending or threatened
before any Authority wherein an unfavorable Order or charge
would (A) prevent consummation of the Transaction or (B)
cause the Transaction to be rescinded following consummation
(and no such Order or charge shall be in effect);
(iv) the Buyer shall have delivered to the Seller a certificate
in the form of Exhibit M, to the effect that each of the
conditions specified above in Section 7(b)(i)-(iii) is
satisfied in all respects;
(v) the Seller shall have received from counsel to the Buyer an
opinion in form and substance as set forth in Exhibit N
attached hereto, addressed to the Seller, and dated as of
the Closing Date; and
(vi) all actions to be taken by the Buyer in connection with
consummation of the Transaction and all certificates,
opinions, instruments, and other documents required to
effect the Transaction will be reasonably satisfactory in
form and substance to the Seller.
The Seller may waive any condition specified in this Section 7(b) if he
executes a writing so stating at or prior to the Closing.
8. Remedies for Breaches of This Agreement.
(a) Survival of Representations and Warranties. Except only for the
representations and warranties described in Schedule 8(a) (the "Sunset
Representations"), all of the representations and warranties of the Parties
contained in this Agreement shall survive the Closing hereunder (even if
the damaged Party knew or had reason to know of any misrepresentation or
breach of warranty or covenant at the time of Closing) and continue in full
force and effect thereafter (subject to any applicable statutes of
limitations). The Sunset Representations shall expire on the date set
forth on Schedule 8(a) (the "Sunset Date"), except that claims, if any,
asserted on or prior to the Sunset Date which are identified as a claim
for indemnification shall survive until finally resolved and satisfied
in full.
(b) Indemnification Provisions for Benefit of the Buyer.
(i) In the event the Seller breaches (or in the event any third
party alleges facts that, if true, would mean the Seller has
breached) any of his representations, warranties, and
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covenants contained herein, and, provided that the Buyer
makes a written claim for indemnification against the Seller
pursuant to Section 11(h) below, then the Seller agrees to
indemnify the Buyer from and against the entirety of any
Adverse Consequences the Buyer may suffer through and after
the date of the claim for indemnification (including any
Adverse Consequences the Buyer may suffer after the end
of any applicable survival period) resulting from, arising
out of, relating to, in the nature of, or caused by the
breach (or the alleged breach), provided, however, that
the Seller shall not have any obligation to indemnify the
Buyer from and against any Adverse Consequences resulting
from, arising out of, relating to, in the nature of, or
caused by the breach (or alleged breach) of any
representation or warranty of the Seller contained in
Section 4(a)-(bb) above until the Buyer has suffered Adverse
Consequences by reason of all such breaches (or alleged
breaches) in excess of a $25,000 aggregate threshold (at
which point the Seller will be obligated to indemnify the
Buyer from and against all such Adverse Consequences relating
back to the first dollar), provided further, however, that
in the determination of whether the Adverse Consequences
exceed the $25,000 aggregate threshold just described (and
only for the purpose of such determination), the first
$10,000 (in the aggregate) of Adverse Consequences resulting
solely from, arising solely out of, and relating only to,
or caused solely by the breach (or alleged breach) of any
representation or warranty of the Seller contained either
in Section 4(g) and/or in Section 4(k) above shall be
excluded.
(ii) The Seller agrees to indemnify the Buyer from and against
the entirety of any Adverse Consequences the Buyer may
suffer resulting from, arising out of, relating to, in the
nature of, or caused by any Liability of the Company (x)
for any Taxes of the Company with respect to any Tax year
or portion thereof ending on or before the Closing Date (or
for any Tax year beginning before and ending after the
Closing Date to the extent allocable (determined in a
manner consistent with Section 9(b)) to the portion of such
period beginning before and ending on the Closing Date),
to the extent such Taxes are not reflected in the reserve
for Tax Liability (rather than any reserve for deferred
Taxes established to reflect timing differences between
book and Tax income) shown on the face of the Closing
Balance Sheet, and (y) for the unpaid Taxes of any Person
(other than the Company) under Reg. Section 1.1502-6 (or
any similar provision of state or local law), as a
transferee or successor, by contract, or otherwise.
(iii)The Seller further agrees to indemnify the Buyer from and
against the entirety of any Adverse Consequences the Buyer
may suffer resulting from or arising out of the operation
of the business of the Company prior to the Closing.
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(iv) For purposes of this Section 8(b), Adverse Consequences which
the Buyer may suffer include any Adverse Consequences
suffered by the Company.
(c) Indemnification Provisions for Benefit of the Seller. In the event
the Buyer breaches (or in the event any third party alleges facts that, if
true, would mean the Buyer has breached) any of its representations,
warranties, and covenants contained herein, and, provided that the Seller
makes a written claim for indemnification against the Buyer pursuant to
Section 11(h) below, then the Buyer agrees to indemnify the Seller from
and against the entirety of any Adverse Consequences the Seller may suffer
through and after the date of the claim for indemnification (including any
Adverse Consequences the Seller may suffer after the end of any applicable
survival period) resulting from, arising out of, relating to, in the nature
of, or caused by the breach (or the alleged breach).
(d) Matters Involving Third Parties.
(i) If any third party shall notify any Party (the "Indemnified
Party") with respect to any matter (a "Third Party Claim")
which may give rise to a claim for indemnification against
any other Party (the "Indemnifying Party") under this
Section 8, then the Indemnified Party shall promptly
notify each Indemnifying Party thereof in writing; provided,
however, that no delay on the part of the Indemnified Party
in notifying any Indemnifying Party shall relieve the
Indemnifying Party from any obligation hereunder unless
(and then solely to the extent) the Indemnifying Party
thereby is prejudiced.
(ii) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel
of its choice reasonably satisfactory to the Indemnified
Party so long as (A) the Indemnifying Party notifies the
Indemnified Party in writing within 15 days after the
Indemnified Party has given notice of the Third Party Claim
that the Indemnifying Party will indemnify the Indemnified
Party from and against the entirety of any Adverse
Consequences the Indemnified Party may suffer resulting
from, arising out of, relating to, in the nature of, or
caused by the Third Party Claim, (B) the Indemnifying Party
provides the Indemnified Party with evidence reasonably
acceptable to the Indemnified Party that the Indemnifying
Party will have the financial resources to defend against
the Third Party Claim and fulfill its indemnification
obligations hereunder, (C) the Third Party Claim involves
only money damages and does not seek an injunction or other
equitable relief, (D) settlement of, or an adverse judgment
with respect to, the Third Party Claim is not, in the good
faith judgment of the Indemnified Party, likely to establish
a precedential custom or practice materially adverse to
the continuing business interests of the Indemnified Party,
36<PAGE>
<PAGE>
and (E) the Indemnifying Party conducts the defense of the
Third Party Claim actively and diligently.
(iii)So long as the Indemnifying Party is conducting the defense
of the Third Party Claim in accordance with Section 8(d)(ii)
above, (A) the Indemnified Party may retain separate
co-counsel at its sole cost and expense and participate
in the defense of the Third Party Claim, (B) the Indemnified
Party will not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim
without the prior written consent of the Indemnifying Party
(not to be withheld unreasonably), and (C) the Indemnifying
Party will not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim
without the prior written consent of the Indemnified Party
(not to be withheld unreasonably).
(iv) In the event any of the conditions in Section 8(d)(ii) above
is or becomes unsatisfied, however, (A) the Indemnified Party
may defend against, and consent to the entry of any judgment
or enter into any settlement with respect to, the Third Party
Claim in any manner it reasonably may deem appropriate (and
the Indemnified Party need not consult with, or obtain any
consent from, any Indemnifying Party in connection therewith),
(B) the Indemnifying Parties will reimburse the Indemnified
Party promptly and periodically for the costs of defending
against the Third Party Claim (including reasonable attorneys'
fees and expenses), and (C) the Indemnifying Parties will
remain responsible for any Adverse Consequences the
Indemnified Party may suffer resulting from, arising out
of, relating to, in the nature of, or caused by the Third
Party Claim to the fullest extent provided in this Section 8.
(e) Adjustment of Purchase Price. All indemnification payments under
this Section 8 shall be deemed adjustments to the Purchase Price. For the
purpose of determining Adverse Consequences under this Section 8, the Buyer
shall make appropriate adjustments for payments received by it under
insurance coverage.
(f) Recoupment Under Buyer Note. The Buyer shall have the option of
recouping all or any part of any Adverse Consequences it may suffer (in
lieu of seeking any indemnification to which it is entitled under this
Section 8) by notifying the Seller that the Buyer is reducing the principal
amount outstanding under the Buyer Note. Such reduction shall affect the
timing and amount of payments required under the Buyer Note in the same
manner as if the Buyer had made a permitted prepayment (without premium
or penalty) thereunder. Notwithstanding the foregoing, the Buyer may
exercise its recoupment option under this Section 8(f) only if and to the
extent that (i) the Buyer has incurred an out-of-pocket expense; (ii) an
amount has been reduced to judgment; or (iii) an Action has been settled
pursuant to the terms of this Agreement.
37<PAGE>
<PAGE>
(g) Other Indemnification Provisions. The foregoing indemnification
provisions are in addition to, and not in derogation of, any statutory,
equitable, or common law remedy (including without limitation any such
remedy arising under Environmental Requirements) any Party may have with
respect to the Company or the Transaction. The Seller hereby agrees that
he will not make any claim for indemnification against the Company by
reason of the fact that he was a director, officer, employee, or agent of
any such entity or was serving at the request of any such entity as a
partner, trustee, director, officer, employee, or agent of another entity
(whether such claim is for judgments, damages, penalties, fines, costs,
amounts paid in settlement, losses, expenses, or otherwise and whether
such claim is pursuant to any statute, charter document, bylaw, agreement,
or otherwise) with respect to any Action brought by the Buyer against the
Seller (whether such Action is pursuant to this Agreement, applicable law,
or otherwise).
9. Tax Matters. The following provisions shall govern the allocation of
responsibility as between the Buyer and the Seller for certain tax matters
following the Closing Date:
(a) Tax Periods Ending on or Before the Closing Date. The Buyer shall
prepare or cause to be prepared and file or cause to be filed all Tax
Returns for the Company for all periods ending on or prior to the Closing
Date which are filed after the Closing Date. The Buyer shall permit Company
to review and comment on each such Tax Return described in the preceding
sentence prior to filing. To the extent permitted by applicable law, the
Seller shall include any income, gain, loss, deduction or other tax items
for such periods on his Tax Returns in a manner consistent with the
Schedule K-1's furnished by the Company to the Seller for such periods.
Seller shall reimburse the Buyer for Taxes of the Company with respect to
such periods within fifteen (15) days after payment by the Buyer or the
Company of such Taxes to the extent such Taxes are not reflected in the
reserve for Tax Liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income)
shown on the face of the Closing Balance Sheet.
(b) Tax Periods Beginning Before and Ending After the Closing Date.
The Buyer shall prepare or cause to be prepared and file or cause to be
filed any Tax Returns of the Company for Tax periods which begin before
the Closing Date and end after the Closing Date. The Seller shall pay to
the Buyer within fifteen (15) days after the date on which Taxes are
paid with respect to such periods an amount equal to the portion of such
Taxes which relates to the portion of such Taxable period ending on the
Closing Date to the extent such Taxes are not reflected in the reserve
for Tax Liability (rather than any reserve for deferred Taxes established
to reflect timing differences between book and Tax income) shown on the
face of the Closing Date Balance Sheet. For purposes of this Section,
in the case of any Taxes that are imposed on a periodic basis and are
payable for a Taxable period that includes (but does not end on) the
Closing Date, the portion of such Tax which relates to the portion of
such Taxable period ending on the Closing Date shall (x) in the case of
any Taxes other than Taxes based upon or related to income or receipts,
be deemed to be the amount of such Tax for the entire Taxable period
38<PAGE>
<PAGE>
multiplied by a fraction the numerator of which is the number of days in
the Taxable period ending on the Closing Date and the denominator of which
is the number of days in the entire Taxable period, and (y) in the case
of any Tax based upon or related to income or receipts, be deemed equal
to the amount which would be payable if the relevant Taxable period
ended on the Closing Date. Any credits relating to a Taxable period that
begins before and ends after the Closing Date shall be taken into account
as though the relevant Taxable period ended on the Closing Date. All
determinations necessary to give effect to the foregoing allocations
shall be made in a manner consistent with prior practice of the Company.
(c) Cooperation on Tax Matters.
(i) The Buyer and the Seller shall cooperate fully, as and to
the extent reasonably requested by the other Party, in
connection with the filing of Tax Returns pursuant to
this Section and any audit, litigation or other proceeding
with respect to Taxes. Such cooperation shall include the
retention and (upon the other Party's request) the provision
of records and information which are reasonably relevant
to any such audit, litigation or other proceeding and
making employees available on a mutually convenient basis
to provide additional information and explanation of any
material provided hereunder. The Company and Seller agree
(A) to retain all books and records with respect to Tax
matters pertinent to the Company relating to any taxable
period beginning before the Closing Date until the
expiration of the statute of limitations (and, to the extent
notified by the Buyer or the Seller, any extensions thereof)
of the respective taxable periods, and to abide by all
record retention agreements entered into with any taxing
authority, and (B) to give the other party reasonable
written notice prior to transferring, destroying or
discarding any such books and records and, if the other
party so requests, the Company or the Seller, as the case
may be, shall allow the other Party to take possession
of such books and records.
(ii) The Buyer and the Seller further agree, upon request, to use
their best efforts to obtain any certificate or other document
from any Authority or any other Person as may be necessary
to mitigate, reduce or eliminate any Tax that could be imposed
(including, but not limited to, with respect to the
Transaction).
(iii)The Buyer and the Seller further agree, upon request, to
provide the other Party with all information that either
Party may be required to report pursuant to Code Section
6043.
(d) Intentionally omitted.
39<PAGE>
<PAGE>
(e) Certain Taxes. All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement, shall be paid by
the Seller when due, and the Seller will, at his own expense, file all
necessary Tax Returns and other documentation with respect to all such
transfer, documentary, sales, use, stamp, registration and other Taxes and
fees, and, if required by applicable law, the Buyer will, and will cause
its Affiliates to, join in the execution of any such Tax Returns and other
documentation.
10. Termination.
(a) Termination of Agreement. The Parties may terminate this Agreement
as provided below:
(i) the Buyer and the Seller may terminate this Agreement by
mutual written consent at any time prior to the Closing;
(ii) the Buyer may terminate this Agreement by giving written
notice to the Seller on or before the 30th day following
the date of this Agreement if the Buyer is not reasonably
satisfied with the results of its continuing business,
legal, environmental, and accounting due diligence regarding
the Company;
(iii)the Buyer may terminate this Agreement by giving written
notice to the Seller at any time prior to the Closing (A)
in the event the Seller has breached any material
representation, warranty, or covenant contained in this
Agreement in any material respect, the Buyer has notified the
Seller of the breach, and the breach has continued without
cure for a period of 30 days after the notice of breach or
(B) if the Closing shall not have occurred on or before
December 31, 1997, by reason of the failure of any condition
precedent under Section 7(a) hereof (unless the failure
results primarily from the Buyer itself breaching any
representation, warranty, or covenant contained in this
Agreement); and
(iv) the Seller may terminate this Agreement by giving written
notice to the Buyer at any time prior to the Closing (A)
in the event the Buyer has breached any material
representation, warranty, or covenant contained in this
Agreement in any material respect, the Seller has notified
the Buyer of the breach, and the breach has continued
without cure for a period of 30 days after the notice of
breach or (B) if the Closing shall not have occurred on or
before December 31, 1997, by reason of the failure of
any condition precedent under Section 7(b) hereof (unless
the failure results primarily from the Seller himself
breaching any representation, warranty, or covenant contained
in this Agreement).
40<PAGE>
<PAGE>
(b) Effect of Termination. If any Party terminates this Agreement
pursuant to Section 10(a) above, all rights and obligations of the Parties
hereunder shall terminate without any Liability of any Party to any other
Party (except for any Liability of any Party then in breach). In the
event of any termination of this Agreement pursuant to Section 10(a)(iii)
or (iv) above, the non-breaching Party shall, in addition to its other
rights and remedies under this Agreement, be entitled to an immediate
payment of $50,000 from the breaching Party, as partial compensation for
the cost, expense, and effort associated with the negotiation of this
Agreement and preparation for the Transaction.
11. Miscellaneous.
(a) Intentionally omitted.
(b) Press Releases and Public Announcements. Neither Party shall issue
any press release or make any public announcement relating to the subject
matter of this Agreement without the prior written approval of the other
Party; provided, however, that any Party may make any public disclosure it
believes in good faith is required by applicable law or any listing or
trading agreement concerning its publicly-traded securities.
(c) No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns.
(d) Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement between the Parties and
supersedes any prior understandings, agreements, or representations by or
between the Parties, written or oral, to the extent they related in any way
to the subject matter hereof.
(e) Succession and Assignment. This Agreement shall be binding upon
and inure to the benefit of the Parties and their respective successors and
permitted assigns. No Party may assign either this Agreement or any of his
or its rights, interests, or obligations hereunder without the prior written
approval of the other Party; provided, however, that the Buyer may (i)
assign any or all of its rights and interests hereunder to one or more of
its Affiliates and (ii) designate one or more of its Affiliates to perform
its obligations hereunder (in any or all of which cases the Buyer
nonetheless shall remain responsible for the performance of all of its
obligations hereunder).
(f) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(g) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning
or interpretation of this Agreement.
41<PAGE>
<PAGE>
(h) Notices. All notices, requests, demands, claims, and other
communications hereunder (collectively, "Notices") will be in writing. Any
Notice shall be deemed duly given if (and then one business day after) it
is sent by recognized overnight delivery service, and addressed to the
intended recipient as set forth below:
If to the Seller:
Myrel Neumann, O.D. Copy to: Peter J. Fuchsteiner, Esq.
2594 Stearns Way Hall & Byers, P.A.
St. Cloud, MN 56303 First Bank Place
1010 West St. Germain
Suite 600
St. Cloud, MN 56301
If to the Buyer:
National Vision Copy to: Mitchell Goodman
Associates, Ltd. General Counsel
296 Grayson Highway National Vision Associates, Ltd.
Lawrenceville, GA 30045 296 Grayson Highway
Lawrenceville, GA 30045
Any Party may send any Notice to the intended recipient at the address set
forth above using any other means (including personal delivery, messenger
service, telecopy, telex, ordinary mail, or electronic mail), but no such
Notice shall be deemed to have been duly given unless and until it actually
is received by the intended recipient. Any Party may change the address
to which Notices are to be delivered by giving the other Parties notice in
the manner herein set forth.
(i) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Georgia without giving
effect to any choice or conflict of law provision or rule (whether of the
State of Georgia or any other jurisdiction) that would cause the application
of the laws of any jurisdiction other than the State of Georgia.
(j) Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by
the Buyer and the Seller. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent
such occurrence.
(k) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision
in any other situation or in any other jurisdiction.
42<PAGE>
<PAGE>
(l) Expenses. Each of the Parties will bear his or its own costs and
expenses (including legal fees and expenses) incurred in connection with
this Agreement and the Transaction. The Buyer agrees that the Company may,
prior to the date of any payments pursuant to Section 2(f) hereof, pay any
costs and expenses (including any legal and accounting fees and expenses) of
the Seller in connection with this Agreement or the Transaction. The
Parties further agree that the Net Book Value shall be reduced by the amount
of such costs and expenses paid or incurred on or before September 30, 1997.
Any payment by the Buyer to the Seller pursuant to Section 2(f) hereof shall
be further reduced by any such costs and expenses paid or incurred after
September 30, 1997. The Seller warrants and represents that no such cost
or expense shall be paid or incurred on or after October 15, 1997.
(m) Construction. Any reference to any federal, state, or local statute
or law shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise. The word "including" shall
mean including without limitation. The Parties intend that each
representation, warranty, and covenant contained herein shall have independent
significance. If any Party has breached any representation, warranty, or
covenant contained herein in any respect, the fact that there exists another
representation, warranty, or covenant relating to the same subject matter
(regardless of the relative levels of specificity) which the Party has not
breached shall not detract from or mitigate the fact that the Party is
in breach of the first representation, warranty, or covenant.
(n) Incorporation of Exhibits and Schedules. The Exhibits and Schedules
(including the Disclosure Schedule) identified in this Agreement and in the
Index are incorporated herein by reference and made a part hereof.
(o) Specific Performance. Each of the Parties acknowledges and agrees
that the other Party would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Party shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and, subject to
Section 11(p) below, to enforce specifically this Agreement and the terms
and provisions hereof in any Action instituted in any court of the United
States or any state thereof having jurisdiction over the Parties and the
matter, in addition to any other remedy to which it or he may be entitled,
at law or in equity.
(p) Arbitration. After the Transaction has closed, any dispute or
controversy arising out of, based on, or in connection with this Agreement,
or the Transaction shall be settled by arbitration to be held in Minneapolis,
Minnesota in accordance with the rules then in effect of the American
Arbitration Association or any successor thereto. The arbitrator may
grant injunctions or other relief in such dispute or controversy. The
decision of the arbitrator shall be final, conclusive, and binding on the
Parties. Judgment may be entered on the arbitrator's decision in any court
having jurisdiction, and the Parties irrevocably consent to the jurisdiction
of the Georgia courts for this purpose. In any such arbitration, the Parties
waive personal service of any process or other papers and agree that service
thereof may be made in accordance with Section 11(h) hereof. The losing
Party in such arbitration shall pay all the costs and expenses of such
arbitration and all the reasonable counsel fees and expenses of the other
Party.
43<PAGE>
<PAGE>
(q) Time of Essence. Time is of the essence under this Agreement.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first above written.
BUYER:
NATIONAL VISION ASSOCIATES, LTD.
By: /s/ James W. Krause
Title:__________________________
SELLER:
/s/ Myrel A. Neumann
Myrel Neumann, O.D.
44
<PAGE>
<PAGE>
INDEX TO STOCK PURCHASE AGREEMENT
BETWEEN
MYREL NEUMANN, O.D.
AND
NATIONAL VISION ASSOCIATES, LTD.
Exhibits
- --------
Exhibit A - Buyer Note
Exhibit B - Headquarters Lease
Exhibit C - Loan Documents
Exhibit D - Neumann Employment Agreement
Exhibit E - Put Option Agreement
Exhibit F - Release
Exhibit G - Seller's Note Payable
Exhibit H - Seller's Note Receivable
Exhibit I - Financial Statements
Exhibit J - Form of Optometric Agreement
Exhibit K - Seller's Certificate
Exhibit L - Opinion of Seller's Counsel
Exhibit M - Buyer's Certificate
Exhibit N - Opinion of Buyer's Counsel
Schedules
- ---------
Schedule 2(b) - Cash and Share Payments
Schedule 2(e)(i) - Accounting Applications
Schedule 3(a) - Exceptions to Seller's representations
and warranties concerning the Transaction
Schedule 3(b) - Exceptions to Buyer's representations
and warranties concerning the Transaction
Schedule 7(a)(x) - Designated Leases
Schedule 8(a) - Sunset Representations and Sunset Date
Other
- -----
Disclosure Schedule
The Registrant hereby agrees to furnish supplementally a copy of any omitted
schedule to the Commission upon request.
<PAGE>
NATIONAL VISION ASSOCIATES, LTD.
EXECUTIVE DEFERRED COMPENSATION PLAN
<PAGE>
<PAGE>
NATIONAL VISION ASSOCIATES, LTD.
EXECUTIVE DEFERRED COMPENSATION PLAN
Table of Contents
Page
ARTICLE I - INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1. Adoption and Name of Plan. . . . . . . . . . . . . . . . . . 1
1.2. Purposes of Plan.. . . . . . . . . . . . . . . . . . . . . . 1
1.3. "Top Hat" Pension Benefit Plan.. . . . . . . . . . . . . . . 1
1.4. Plan Unfunded. . . . . . . . . . . . . . . . . . . . . . . . 1
1.5. Effective Date.. . . . . . . . . . . . . . . . . . . . . . . 1
1.6. Administration.. . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II - DEFINITIONS AND CONSTRUCTION. . . . . . . . . . . . . . . . . 3
2.1. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2. Number and Gender. . . . . . . . . . . . . . . . . . . . . . 7
2.3. Headings.. . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE III - PARTICIPATION AND ELIGIBILITY. . . . . . . . . . . . . . . . 8
3.1. Participation. . . . . . . . . . . . . . . . . . . . . . . . 8
3.2. Commencement of Participation. . . . . . . . . . . . . . . . 8
3.3. Cessation of Active Participation. . . . . . . . . . . . . . 8
ARTICLE IV - DEFERRALS AND COMPANY CONTRIBUTIONS . . . . . . . . . . . . . 9
4.1. Deferrals by Participants. . . . . . . . . . . . . . . . . . 9
4.2. Effective Date of Participation Agreement. . . . . . . . . . 9
4.3. Modification or Revocation of Election by Participant. . . . 9
4.4. Company Contributions. . . . . . . . . . . . . . . . . . . . 9
4.5. Hardship Distribution Under 401(k) Plan. . . . . . . . . . .10
ARTICLE V - VESTING, DEFERRAL PERIODS AND EARNINGS ELECTIONS . . . . . . .11
5.1. Vesting. . . . . . . . . . . . . . . . . . . . . . . . . . .11
5.2. Election of In-Service Distribution. . . . . . . . . . . . .11
5.3. Earnings Elections.. . . . . . . . . . . . . . . . . . . . .11
ARTICLE VI - ACCOUNTS. . . . . . . . . . . . . . . . . . . . . . . . . . .12
6.1. Establishment of Bookkeeping Accounts. . . . . . . . . . . .12
6.2. Subaccounts. . . . . . . . . . . . . . . . . . . . . . . . .12
6.3. Hypothetical Nature of Accounts. . . . . . . . . . . . . . .12
ARTICLE VII - PAYMENT OF ACCOUNT . . . . . . . . . . . . . . . . . . . . .13
7.1. Distribution After Deferral Period or Termination
of Employment. . . . . . . . . . . . . . . . . . . . . . . .13
7.2. Time of Distribution and Valuation.. . . . . . . . . . . . .13
7.3. Form of Payment or Payments. . . . . . . . . . . . . . . . .13
7.4. Accelerated Distribution.. . . . . . . . . . . . . . . . . .14
7.5. Designation of Beneficiaries.. . . . . . . . . . . . . . . .14
i
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7.6. Amendments.. . . . . . . . . . . . . . . . . . . . . . . . .14
7.7. Change in Marital Status.. . . . . . . . . . . . . . . . . .15
7.8. No Beneficiary Designation.. . . . . . . . . . . . . . . . .15
7.9. Unclaimed Benefits.. . . . . . . . . . . . . . . . . . . . .15
7.10. Hardship Withdrawals. . . . . . . . . . . . . . . . . . . .16
7.11. Withholding.. . . . . . . . . . . . . . . . . . . . . . . .16
ARTICLE VIII - ADMINISTRATION. . . . . . . . . . . . . . . . . . . . . . .17
8.1. Committee. . . . . . . . . . . . . . . . . . . . . . . . . .17
8.2. General Powers of Administration.. . . . . . . . . . . . . .17
8.3. Indemnification of Committee.. . . . . . . . . . . . . . . .17
8.4. Administrative Charges.. . . . . . . . . . . . . . . . . . .17
ARTICLE IX - CLAIMS PROCEDURE. . . . . . . . . . . . . . . . . . . . . . .18
9.1. Claims.. . . . . . . . . . . . . . . . . . . . . . . . . . .18
9.2. Claim Decision.. . . . . . . . . . . . . . . . . . . . . . .18
9.3. Request for Review.. . . . . . . . . . . . . . . . . . . . .18
9.4. Review of Decision.. . . . . . . . . . . . . . . . . . . . .19
9.5. Discretionary Authority. . . . . . . . . . . . . . . . . . .19
ARTICLE X - MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . .20
10.1. Plan Not a Contract of Employment.. . . . . . . . . . . . .20
10.2. Non-Assignability of Benefits.. . . . . . . . . . . . . . .20
10.3. Amendment and Termination.. . . . . . . . . . . . . . . . .20
10.4. Unsecured General Creditor Status Of Employee.. . . . . . .20
10.5. Severability. . . . . . . . . . . . . . . . . . . . . . . .21
10.6. Governing Laws. . . . . . . . . . . . . . . . . . . . . . .21
10.7. Binding Effect. . . . . . . . . . . . . . . . . . . . . . .21
10.8. Entire Agreement. . . . . . . . . . . . . . . . . . . . . .21
10.9. No Guarantee of Tax Consequences. . . . . . . . . . . . . .21
10.10. Adoption by Affiliates.. . . . . . . . . . . . . . . . . .21
ii<PAGE>
<PAGE>
NATIONAL VISION ASSOCIATES, LTD.
EXECUTIVE DEFERRED COMPENSATION PLAN
ARTICLE I
INTRODUCTION
1. Introduction
1.1. Adoption and Name of Plan.
The Company adopts the National Vision Associates, Ltd.,
Executive Deferred Compensation Plan.
1.2. Purposes of Plan.
The purposes of the Plan are to provide deferred compensation
for a select group of management or highly compensated Employees of the
Company and to provide them the opportunity to maximize their elective
contributions to the 401(k) Plan notwithstanding certain restrictions and
limitations in the Code.
1.3. "Top Hat" Pension Benefit Plan.
The Plan is an "employee pension benefit plan" within the
meaning of ERISA Section 3(2). The Plan is maintained, however, for a select
group of management or highly compensated employees and, therefore, is exempt
from Parts 2, 3 and 4 of Title 1 of ERISA. The Plan is not intended to
qualify under Code Section 401(a).
1.4. Plan Unfunded.
The Plan is unfunded. All benefits will be paid from the
general assets of the Company, which will continue to be subject to the
claims of the Company's creditors. No amounts will be set aside for the
benefit of Plan Participants or their Beneficiaries. Notwithstanding the
preceding provisions of this Section 1.4, the Company may at any time
transfer assets to a trust for purposes of paying all or any part of its
obligations under this Plan. However, to the extent provided in the trust,
such transferred amounts shall remain subject to the claims of general
creditors of the Company but only in accordance with the terms of such
trust. To the extent that assets are held in the trust when a
Participant's benefits under the Plan become payable, the Committee shall
direct the trustee to make trust assets available to pay such benefits to
the Participant. Any payments made to a Participant or Beneficiary from
such trust shall relieve the Company from any further obligations under
the Plan but only to the extent of such payment.
1.5. Effective Date.
The Plan is effective as of the Effective Date.
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1.6. Administration.
The Plan shall be administered by the Committee.
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ARTICLE II
DEFINITIONS AND CONSTRUCTION
2. Definitions and Construction.
2.1. Definitions.
For purposes of the Plan, the following words and phrases
shall have the respective meanings set forth below, unless their context
clearly requires a different meaning:
(a) Account.
"Account" means the bookkeeping account maintained by
the Committee on behalf of each Participant pursuant to Article VI.
(b) Base Salary.
"Base Salary" means the base rate of cash compensation
paid by the Company to or for the benefit of a Participant for services
rendered or labor performed.
(c) Base Salary Deferral.
"Base Salary Deferral" means the amount of a
Participant's Base Salary which the Participant elects to have
withheld on a pre-tax basis and credited to his Account pursuant to
Section 4.1.
(d) Beneficiary.
"Beneficiary" means the person or persons designated
by the Participant in accordance with Section 7.5.
(e) Board.
"Board" means the board of Directors of the Company.
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(f) Bonus Compensation.
"Bonus Compensation" means the amount awarded to a
Participant for a Plan Year under the Management Incentive Plan and/or
any other bonus arrangement maintained by the Company.
(g) Bonus Deferral.
"Bonus Deferral" means the amount of a Participant's
Bonus Compensation which the Participant elects to have withheld on a
pre-tax basis and credited to his account pursuant to Section 4.1.
(h) Code.
"Code" means the Internal Revenue Code of 1986, as
amended.
(i) Code Limitation.
"Code Limitation" means a limitation imposed by Code
Section 401(a)(17), Code Section 402(g)(1), and/or Code Section
401(m)(2)(A).
(j) Committee.
"Committee" means the administrative committee
appointed to administer the Plan in accordance with Article VIII.
(k) Company.
"Company" means National Vision Associates, Ltd.,
a Georgia corporation, and any successor to it.
(l) Company Contribution.
"Company Contribution" means the amount of Company
contributions, as determined by the Committee on an annual basis, that
would have been contributed for and/or allocated to the Participant
under the 401(k) Plan but was not so contributed and/or allocated
because of a Code Limitation and/or because a portion of the
Participant's compensation was Excluded Compensation.
(m) Deferral.
"Deferral" means a Base Salary Deferral and/or
Bonus Deferral.
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(n) Deferral Period.
"Deferral Period" means the period of time for which
a Participant elects to defer receipt of the Deferrals credited to
such Participant's Account as specified in Section 5.2. Deferral
Periods shall be measured on the basis of Plan Years, beginning with
the Plan Year that commences immediately following the Plan Year for
which the applicable Deferrals are credited to the Participant's
Account.
(o) Director.
"Director" means a director of the Company.
(p) Early Retirement Date.
"Early Retirement Date" means the date a Participant
voluntarily terminates his employment with the Company on or after he
has attained at least fifty-five (55) years of age, but not sixty-five
(65) years of age, and has completed at lest fifteen (15) years of
service (as defined in the 401(k) Plan for vesting purposes).
(q) Effective Date.
"Effective Date" means October 1, 1997.
(r) Employee.
"Employee" means any common-law employee of the
Company.
(s) ERISA.
"ERISA" means the Employee Retirement Income
Security Act of 1974, as amended.
(t) Excluded Compensation.
"Excluded Compensation" means Deferrals which are
not considered compensation under the 401(k) Plan but which would have
been considered compensation under the 401(k) Plan if this Plan did
not exist.
(u) 401(k) Plan.
"401(k) Plan" means the National Vision Associates,
Ltd. Retirement Savings Plan, as amended from time to time.
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(v) Level III and Level IV Participants
"Level III and Level IV Participants" mean those
Employees participating at level III and level IV in the Management
Incentive Plan, respectively.
(w) Management Incentive Plan.
"Management Incentive Plan" means the Company's
management incentive plan, as amended from time to time.
(x) Participant.
"Participant" means each Employee who has been
selected for participation in the Plan and who has become a
Participant pursuant to Article III.
(y) Participation Agreement.
"Participation Agreement" means the written agreement
pursuant to which the Participant elects the amount of his Base Salary
and/or Bonus Compensation to be deferred pursuant to the Plan, the
amount of Deferrals which are distributed pursuant to Section 7.1(a)
to be contributed to the 401(k) Plan, the Deferral Period, the deemed
investment of amounts credited to his Account, and such other matters
as the Committee shall determine from time to time.
(z) Plan.
"Plan" means the National Vision Associates, Ltd.
Executive Deferred Compensation Plan, as amended from time to time.
(aa) Plan Year.
"Plan Year" means the twelve-consecutive month
period commencing January 1 of each year ending on December 31.
Notwithstanding the foregoing, the first Plan Year shall begin on the
Effective Date and end on December 31, 1997.
(bb) Retirement Date.
"Retirement Date" means the date
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(i) a Participant's employment with Company
terminates for a reason other than death
(A) on or after he has attained at least
sixty-five (65) years of age, or
(B) with the Committee's consent; or
(ii) the Participant qualifies for disability
under the Company's group long-term disability plan.
(cc) Valuation Date.
"Valuation Date" means the last business day of each
calendar month, the date each Deferral would have been paid but for
the election to defer, and each special valuation date designated by
the Committee.
2.2. Number and Gender.
Wherever appropriate herein, words used in the singular shall
be considered to include the plural and words used in the plural shall be
considered to include the singular. The masculine gender, where appearing
in the Plan, shall be deemed to include the feminine gender.
2.3. Headings.
The headings of Articles and Sections herein are included
solely for convenience, and if there is any conflict between such headings
and the rest of the Plan, the text shall control.
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ARTICLE III
PARTICIPATION AND ELIGIBILITY
3. Participation and Eligibility.
3.1. Participation.
Participants in the Plan are those Employees who are (a)
subject to the income tax laws of the United States, (b) members of a select
group of highly compensated or management Employees of the Company, (c) Level
III or Level IV Participants, and (d) selected by the Committee, in its sole
discretion, as Participants. The Committee shall notify each Participant of
his selection as a Participant. Subject to the provisions of Section 3.3
a Participant shall remain eligible to continue participation in the Plan for
each Plan Year following his initial year of participation in the Plan. The
Committee may also impose other conditions for eligibility, including,
without limitation, the Employee taking and passing a medical examination.
3.2. Commencement of Participation.
Except as provided in the following sentence, an Employee
shall become a Participant effective as of the first day of the Plan Year
following the date on which his Participation Agreement becomes effective.
A newly eligible Employee (because of hire or promotion) who completes a
Participation Agreement within thirty (30) days of the date on which his
employment commences (or his promotion becomes effective) shall become a
Participant as of the date on which his Participation Agreement is
effective under Section 4.2.
3.3. Cessation of Active Participation.
Notwithstanding any provision herein to the contrary, an
individual who has become a Participant in the Plan shall cease to be a
Participant hereunder effective as of any date designated by the Committee.
In the event of such cessation, the last sentence of Section 4.1 shall
apply as if such cessation had been a termination of employment. Any
such Committee action shall be communicated to such Participant prior to
the effective date of such action.
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ARTICLE IV
DEFERRALS AND COMPANY CONTRIBUTIONS
4. Deferrals & Company Plan Contributions.
4.1. Deferrals by Participants.
Before the first day of each Plan Year, a Participant may
file with the Committee a Participation Agreement pursuant to which such
Participant elects to make Deferrals. Participants may defer up to fifteen
percent (15%) of their Base Salary and up to fifty percent (50%) of their
Bonus Compensation. The Committee may increase the foregoing limitations
with respect to one or more Participants for any Plan Year. All Deferrals
so elected must be in whole percentages. Any such Participant election
shall be subject to rules prescribed by the Committee. Base Salary
Deferrals will be credited to the Account of each Participant on the
date the Base Salary would have been paid. Bonus Deferrals will be
credited to the Account of each Participant on the date the Bonus
Compensation would have been paid provided he is an Employee at such time.
A Participant whose employment terminates prior to the date the Bonus
Compensation, if any, to which he is entitled would have been paid to him
will be paid such Bonus Compensation in cash.
4.2. Effective Date of Participation Agreement.
A Participant's Participation Agreement shall become
effective on the first day of the Plan Year to which it relates. The
Participation Agreement of Employees who are first eligible during a Plan
Year shall become effective as of the first day of the month following
completion of a Participation Agreement provided the Participation
Agreement is completed within thirty (30) days of the date the Employee
first becomes eligible. Participation Agreements shall relate only to
compensation earned after such agreement is completed, executed and filed
with the Committee. If a Participant fails to complete and file with the
Committee a Participation Agreement before the first day of the Plan Year
in which Participant shall earn the compensation to which the Participation
Agreement relates, the Participant shall be deemed to have elected not to
make Base Salary Deferrals, and/or Bonus Deferrals for such Plan Year.
4.3. Modification or Revocation of Election by Participant.
A Participant may not change the amount of his Base Salary
or Bonus Deferrals during a Plan Year.
4.4. Company Contributions.
For each Plan Year, the Account of each Participant shall
be credited with the Company Contributions, if any, determined pursuant
to Section 2.1(l).
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4.5. Hardship Distribution Under 401(k) Plan.
A Participant who receives a hardship distribution under
the 401(k) Plan shall not be eligible to make Deferrals for a one (1) year
period after receipt of the hardship distribution.
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ARTICLE V
VESTING, DEFERRAL PERIODS AND EARNINGS ELECTIONS
5. Vesting, Deferral Periods and Earnings Elections.
5.1. Vesting.
A Participant shall be one hundred percent (100%) vested at
all times in the amount of his Account which is attributable to his
Deferrals. Company Contributions shall vest in accordance with the 401(k)
Plan. All provisions of the Plan relating to the distribution of a
Participant's Account shall mean only the vested portion of such Account.
Since the Plan is unfunded, the portion of a Participant's Account which
is not vested and therefore not distributed with the vested portion of his
Account shall remain property of the Company and not be allocated to
Accounts of other Participants or otherwise inure to their benefit.
5.2. Election of In-Service Distribution.
If a Participant desires an in-service distribution of all
or a percentage of his Deferrals for a Plan Year and earnings or losses
thereon, he must so elect on his Participation Agreement. In the case of
any such election, the Deferral Period must be for at least five (5) years.
If the Participant elects an in-service distribution and is entitled to
such a distribution pursuant to such election prior to the events listed
in Section 7.1(b), distribution pursuant to such election shall not include
Company Contributions and earnings on Company Contributions and must be in
a lump sum.
5.3. Earnings Elections.
Amounts credited to a Participant's Account shall be credited
or charged with earnings and losses, as the case may be, based on
hypothetical investments elected by the Participant. A Participant may
elect different investment allocations for new contributions and existing
Account balances. Only whole percentages may be elected, the minimum
percentage for any allocation is ten percent (10%), and the total elections
must allocate one hundred percent (100%) of all new contributions and one
hundred percent (100%) of all existing Account balances. Investment
elections may be changed once per calendar quarter, effective as of the
first day of such quarter, by written direction given to the Committee at
least seven (7) days before the start of such quarter. The hypothetical
investment alternatives and the procedures relating to the election of
such investments, other than those set forth in this Section 5.3, shall be
determined by the Committee from time to time. A Participant's Account
shall be adjusted as of each Valuation Date to reflect investment gains
and losses.
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ARTICLE VI
ACCOUNTS
6. Accounts.
6.1. Establishment of Bookkeeping Accounts.
A separate bookkeeping Account shall be maintained for each
Participant. Such account shall be credited with Deferrals and Company
Contributions, credited (or charged, as the case may be) with the
hypothetical investment results determined pursuant to Section 5.3, charged
with any expenses described in Section 8.4, and charged with distributions
made to or with respect to a Participant.
6.2. Subaccounts.
Within each Participant's bookkeeping Account, separate
subaccounts shall be maintained to the extent necessary for the
administration of the Plan.
6.3. Hypothetical Nature of Accounts.
The Account established under this Article VI shall be
hypothetical in nature and shall be maintained for bookkeeping purposes only,
so that Deferrals and Company Contributions can be credited to the
Participant and so that earnings and losses on such amounts so credited can
be credited or charged, as the case may be. Except as provided in
Section 1.4, neither the Plan nor any of the Accounts (or subaccounts)
shall hold any actual funds or assets. The right of any person to receive
one or more payments under the Plan shall be an unsecured claim against
the general assets of the Company. Any liability of the Company to
any Participant, former Participant, or Beneficiary with respect to a right
to payment shall be based solely upon contractual obligations created by
the Plan. Neither the Company, the Board, nor any other person shall
be deemed to be a trustee of any amounts to be paid under the Plan. Nothing
contained in the Plan, and no action taken pursuant to its provisions,
shall create or be construed to create a trust of any kind, or a
fiduciary relationship, between the Company and a Participant, former
Participant, Beneficiary, or any other person.
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ARTICLE VII
PAYMENT OF ACCOUNT
7. Payment of Account.
7.1. Distribution After Deferral Period or Termination of Employment.
Distribution of that portion of a Participant's Account for
which an in-service distribution has been elected pursuant to Section 5.2
shall be made at the time specified in such election unless the Participant's
employment terminates prior to such time, in which event the remaining
provisions of this Section 7.1 shall apply. Except as provided below, a
Participant's entire Account shall be distributed to him (or his Beneficiary
in the event of his death) following the earliest to occur of the following:
(a) the Participant's death;
(b) the Participant's Retirement Date;
(c) the Participant's Early Retirement Date; or
(d) the Participant's other termination of employment.
Notwithstanding the foregoing, if a Participant's Retirement Date is as
defined in Section 2.1(bb)(ii), if requested by the Participant and
permitted by the Committee, distribution may be deferred up to the earlier
of the date specified in Section 2.1(bb)(i)(A) or the Participant's death.
7.2. Time of Distribution and Valuation.
Upon a distributable event described in Section 7.1, the
balance of a Participant's Account shall be determined as of the Valuation
Date immediately following such event. Distribution will be made or begin
to be made as soon as practical after the later of such valuation or sixty
(60) days following the event.
7.3. Form of Payment or Payments.
If the value of the Participant's Account as of the
Valuation Date described in Section 7.2 is at least Five Thousand Dollars
($5,000.00), benefits payable after the Participant's Retirement Date or
Early Retirement Date shall (subject to the second sentence in (b) below)
be paid in the form elected by the Participant. The form elected shall
apply to the entire Account. The election may be amended, provided that
the amended election does not increase the duration of payments in the
previous election and the election is made no later than December 31 of
the calendar year prior to his Retirement Date. The forms of distributions
are:
(a) A lump sum amount; or
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(b) Substantially equal monthly installments over a period
of sixty (60), one hundred twenty (120), or one hundred eighty (180)
months or substantially equal annual installments over a period of
five (5), ten (10), or fifteen (15) years. Notwithstanding the
foregoing, if a Participant's employment termination date is his
Early Retirement Date, the installment periods shall be sixty (60),
in the case of monthly installments, and five (5), in the case of
annual installments. Earnings on the unpaid balance shall continue
to be credited to subaccounts at the appropriate earning rate, in
accordance with the Participant's investment election.
In all cases other than those described in the first sentence of this
Section 7.3, the form of benefit shall be a lump sum. If a former
Participant is receiving an installment form of distribution and dies prior
to the distribution of his entire Account, distributions will be continued
to his Beneficiary.
7.4. Accelerated Distribution.
Notwithstanding any other provision of the Plan, a Participant
shall be entitled to receive, upon written request to the Committee, a lump
sum distribution of his Account balance, valued as of the end of the month,
immediately prior to the month in which such request is made subject to
penalty of ten percent (10%) of such balance which shall be forfeited. A
Participant who receives a distribution under this Section 7.4 shall not be
eligible to make Deferrals until the first day of the second Plan Year which
begins after such distribution. The amount payable under this section shall
be paid in a lump sum as soon as practical following the receipt of the
Participant's written request by the Committee and the valuation of his
Account.
7.5. Designation of Beneficiaries.
Each Participant shall have the right, at any time, to
designate one (1) or more persons or an entity as Beneficiary (both primary
as well as secondary) to whom benefits under this Plan shall be paid
in the event of a Participant's death prior to complete distribution of the
Participant's Account. Each Beneficiary designation shall be in a written
form prescribed by the Committee and will be effective only when filed with
the Committee during the Participant's lifetime. Designation by a married
Participant of a Beneficiary other than the Participant's spouse shall not
be effective unless the spouse executes a written consent that acknowledges
the effect of the designation and is witnessed by a notary public, or the
consent cannot be obtained because the spouse cannot be located.
7.6. Amendments.
Except as provided below, any nonspousal designation of a
Beneficiary may be changed by a Participant without the consent of such
Beneficiary by the filing of a new designation with the Committee. The
filing of a new designation shall cancel all designations previously filed.
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7.7. Change in Marital Status.
If the Participant's marital status changes after the
Participant has designated a Beneficiary, the following shall apply:
(a) If the Participant is married at death but was
unmarried when the designation was made, the designation shall be
void unless the individual who is the Participant's spouse on his
date of death has consented to it in the manner prescribed above.
(b) If the Participant is unmarried at death but was
married when the designation was made:
(i) The designation shall be void if the spouse
was named as Beneficiary.
(ii) The designation shall remain valid if a
nonspouse Beneficiary was named.
(c) If the Participant was married when the designation
was made and is married to a different spouse at death, the
designation shall be void unless the unless the individual who is
the Participant's spouse on his date of death has consented to it
in the manner prescribed above.
7.8. No Beneficiary Designation.
If any Participant fails to designate a Beneficiary in the
manner provided above, or if all the Beneficiaries designated by a deceased
Participant die before the Participant dies or before the complete
distribution of the Participant's benefits, the Participant's interest in
the Plan shall be distributed to the Participant's estate.
7.9. Unclaimed Benefits.
In the case of a benefit payable on behalf of such
Participant, if the Committee is unable to locate the Participant or
Beneficiary to whom such benefit is payable, such benefit may be forfeited
to the Company, upon the Committee's determination. Notwithstanding the
foregoing, if subsequent to any such forfeiture the Participant or
Beneficiary to whom such benefit is payable makes a valid claim for such
benefit, such forfeited benefit shall be paid by the Company or restored
to the Plan by the Company.
7.10. Hardship Withdrawals.
A Participant may apply in writing to the Committee for, and
the Committee may permit, a hardship withdrawal of all (valued as of the
last day of the month prior to the month in which the application is made)
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or any part of a Participant's Account if the Committee, in its sole
discretion, determines that the Participant has incurred a severe financial
hardship resulting from a sudden and unexpected illness or accident of the
Participant or of a dependent (as defined in section 152(a) of the Code)
of the Participant, loss of the Participant's property due to casualty, or
other similar extraordinary and unforeseeable circumstances arising as a
result of events beyond the control of the Participant, as determined by
the Committee, in its sole and absolute discretion. The amount that may
be withdrawn shall be limited to the amount reasonably necessary to
relieve the hardship or financial emergency upon which the request is
based, plus the federal and state taxes due on the withdrawal, as
determined by the Committee. The Committee may require a Participant
who requests a hardship withdrawal to submit such evidence as the
Committee, in its sole discretion, deems necessary or appropriate to
substantiate the circumstances upon which the request is based. A
Participant who receives a distribution under this Section 7.10 shall
not be eligible to make Deferrals until the first day of the second
Plan Year which begins after such distribution and then only if he
satisfies the eligibility requirements in Section 3.1.
7.11. Withholding.
All Deferrals and distributions shall be subject to
legally required income and employment tax withholding.
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ARTICLE VIII
ADMINISTRATION
8. Administration.
8.1. Committee.
The Plan shall be administered by a Committee which shall be
appointed by and serve at the pleasure of the Board or a committee of the
Board. The Committee shall be responsible for the general operation and
administration of the Plan and for carrying out the provisions thereof.
The Committee may delegate to others certain aspects of the management
and operational responsibilities of the Plan including the employment of
advisors and the delegation of ministerial duties to qualified individuals,
provided that such delegation is in writing. No member of the Committee
who is a Participant shall participate in any matter relating to his status
as a Participant or his rights or entitlement to benefits as a Participant.
8.2. General Powers of Administration.
The Committee shall have all powers necessary or appropriate
to enable it to carry out its administrative duties. Not in limitation,
but in application of the foregoing, the Committee shall have discretionary
authority to construe and interpret the Plan and determine all questions
that may arise hereunder as to the status and rights of Employees,
Participants, and Beneficiaries. The Committee may exercise the powers
hereby granted in its sole and absolute discretion. The Committee may
promulgate such regulations as it deems appropriate for the operation and
administration of the Plan. No member of the Committee shall be personally
liable for any actions taken by the Committee unless the member's action
involves willful misconduct.
8.3. Indemnification of Committee.
The Company shall indemnify the members of the Committee
against any and all claims, losses, damages, expenses, including attorney's
fees, incurred by them, and any liability, including any amounts paid
in settlement with their approval, arising from their action or failure to
act, except when the same is judicially determined to be attributable to
their gross negligence or willful misconduct.
8.4. Administrative Charges.
To the extent not paid by the Company, expenses incurred in
the administration and operation of the Plan shall be charged to the Accounts
of Participants and their Beneficiaries in proportion to the value of such
Accounts.
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ARTICLE IX
CLAIMS PROCEDURE
9. Claims Procedure.
9.1. Claims.
A person who believes that he is being denied a benefit to
which he is entitled under the Plan (the "Claimant") may file a written
request for such benefit with the Committee, setting forth his claim. The
request must be addressed to the Committee at the Company at its then
principal place of business.
9.2. Claim Decision.
Upon receipt of a claim, the Committee shall advise the
Claimant that a reply will be forthcoming within ninety (90) days and
shall, in fact, deliver such reply within such period. The Committee
may, however, extend the reply period for an additional ninety (90) days
for reasonable cause.
If the claim is denied in whole or in part, the Committee
shall adopt a written opinion, using language calculated to be understood
by the Claimant, setting forth:
(a) The specific reason or reasons for such denial;
(b) The specific reference to pertinent provisions of
the Plan on which such denial is based;
(c) A description of any additional material or
information necessary for the Claimant to perfect his claim and an
explanation why such material or such information is necessary;
(d) Appropriate information as to the steps to be taken
if the Claimant wishes to submit the claim for review; and
(e) The time limits for requesting a review under Section
9.3 and for review under Section 9.4 hereof.
9.3. Request for Review.
Within sixty (60) days after the receipt by the Claimant of
the written opinion described above, the Claimant may request in writing
that the Secretary of the Company (the "Secretary") review the determination
of the Committee. Such request must be addressed to the Secretary of the
Company, at its then principal place of business. The Claimant or his
duly authorized representative may, but need not, review the pertinent
documents and submit issues and comments in writing for consideration by
the Secretary. If the Claimant does not request a review of the Committee's
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determination by the Secretary of the Company within such sixty (60) day
period, he shall be barred and estopped from challenging the Committee's
determination.
9.4. Review of Decision.
Within sixty (60) days after the Secretary's receipt of a
request for review, he will review the Committee's determination. After
considering all materials presented by the Claimant, the Secretary will
render a written opinion, written in a manner calculated to be understood
by the Claimant, setting forth the specific reasons for the decision and
containing specific references to the pertinent provisions of the Plan
on which the decision is based. If special circumstances require that the
sixty (60) day time period be extended, the Secretary will so notify the
Claimant and will render the decision as soon as possible, but no later
than one hundred twenty (120) days after receipt of the request for review.
9.5. Discretionary Authority.
The Committee and Secretary shall both have discretionary
authority to determine a Claimant's entitlement to benefits upon his claim
or his request for review of a denied claim, respectively.
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ARTICLE X
MISCELLANEOUS
10. Miscellaneous.
10.1. Plan Not a Contract of Employment.
The adoption and maintenance of the Plan shall not be or be
deemed to be a contract between the Company and any person or to be
consideration for the employment of any person. Nothing herein contained
shall give or be deemed to give any person the right to be retained in the
employ of the Company or to restrict the right of the Company to discharge
any person at any time; nor shall the Plan give or be deemed to give the
Company the right to require any person to remain in the employ of the
Company or to restrict any person's right to terminate his employment at
any time.
10.2. Non-Assignability of Benefits.
No Participant, Beneficiary or distributee of benefits under
the Plan shall have any power or right to transfer, assign, anticipate,
hypothecate or otherwise encumber any part or all of the amounts payable
hereunder, which are expressly declared to be unassignable and
non-transferable. Any such attempted assignment or transfer shall be void.
No amount payable hereunder shall, prior to actual payment thereof, be
subject to seizure by any creditor of any such Participant, Beneficiary or
other distributee for the payment of any debt, judgment, or other obligation,
by a proceeding at law or in equity, nor transferable by operation of law
in the event of the bankruptcy, insolvency or death of such Participant,
Beneficiary or other distributee hereunder.
10.3. Amendment and Termination.
The Board may from time to time, in its discretion, amend,
in whole or in part, any or all of the provisions of the Plan; provided,
however, that no amendment may be made which would impair the rights of a
Participant with respect to amounts already allocated to his Account. The
Board may terminate the Plan at any time. In the event that the Plan is
terminated, the balance in a Participant's Account shall be paid to such
Participant or his Beneficiary in a lump sum or in equal monthly
installments as the Committee determines.
10.4. Unsecured General Creditor Status Of Employee.
The payments to Participant, his Beneficiary or any other
distributee hereunder shall be made from assets which shall continue, for
all purposes, to be a part of the general, unrestricted assets of the
Company; no person shall have nor acquire any interest in any such assets
by virtue of the provisions of this Agreement. The Company's obligation
hereunder shall be an unfunded and unsecured promise to pay money in the
future. To the extent that the Participant, a Beneficiary, or other
distributee acquires a right to receive payments from the Company under
the provisions hereof, such right shall be no greater than the right
of any unsecured general creditor of the Company; no such person shall
have nor require any legal or equitable right, interest or claim in or
to any property or assets of the Company. In the event that, in its
discretion, the Company purchases an insurance policy or policies insuring
20<PAGE>
<PAGE>
the life of the Participant (or any other property) to allow the Company
to recover the cost of providing the benefits, in whole, or in part,
hereunder, neither the Participant, his Beneficiary or other distributee
shall have nor acquire any rights whatsoever therein or in the proceeds
therefrom. The Company shall be the sole owner and beneficiary of any
such policy or policies and, as such, shall possess and may exercise
all incidents of ownership therein. No such policy, policies or other
property shall be held in any trust for a Participant, Beneficiary or other
distributee or held as collateral security for any obligation of the Company
hereunder.
10.5. Severability.
If any provision of this Plan shall be held illegal or
invalid for any reason, said illegality or invalidity shall not affect the
remaining provisions hereof; instead, each provision shall be fully
severable and the Plan shall be construed and enforced as if said illegal
or invalid provision had never been included herein.
10.6. Governing Laws.
All provisions of the Plan shall be construed in accordance
with the laws of Georgia except to the extent preempted by federal law.
10.7. Binding Effect.
This Plan shall be binding on each Participant and his heirs
and legal representatives and on the Company and its successors and assigns.
10.8. Entire Agreement.
This document and any amendments contain all the terms and
provisions of the Plan and shall constitute the entire Plan, any other
alleged terms or provisions being of no effect.
10.9. No Guarantee of Tax Consequences.
While the Company has established, and will maintain and
administer, the Plan, the Company makes no representation, warranty,
commitment, or guaranty concerning the income, employment, or other tax
consequences of participation in the Plan under federal, state, or local
law.
10.10. Adoption by Affiliates.
If approved by the Board, any entity which must be aggregated
with the Company under Code Sections 414(b), 414(c), or 414(m) may adopt the
Plan. In such case, the term "Company" shall include any such entity except
that the term "Board" shall mean only the Board of National Vision
Associates, Ltd. Each entity which adopts the Plan shall be the primary
obligor with respect to the Plan benefits that are owed to a Participant
21<PAGE>
<PAGE>
who is employed by the adopting entity. If a trust is established in
connection with the Plan, each adopting entity shall make contributions to
the trust on behalf of the Participants who are employed by such adopting
entity.
IN WITNESS WHEREOF, the Company has caused this Plan to be
executed on the 1st day of December, 1997.
NATIONAL VISION ASSOCIATES, LTD.
By: /s/ Robert W. Stein
Title: Vice President, Human Resources
22
<PAGE>
<PAGE>
FIRST AMENDMENT
TO THE
NATIONAL VISION ASSOCIATES, LTD.
EXECUTIVE DEFERRED COMPENSATION PLAN
Pursuant to Section 10.3 of the National Vision Associates, Ltd.
Executive Deferred Compensation Plan ("Plan"), Section 2.1(p) of the Plan is
amended, effective October 1, 1997 by adding the following additional
sentence to such section:
"Notwithstanding the foregoing, the Participants named on the
attached Exhibit A shall not be required to satisfy the fifteen
(15) year service requirement."
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed this 31st day of December, 1997.
NATIONAL VISION ASSOCIATES, LTD.
By: /s/ Robert W. Stein
Title: Sr. Vice President, Human Resources
<PAGE>
<PAGE>
EXHIBIT A
TO NATIONAL VISION ASSOCIATES, LTD.
EXECUTIVE DEFERRED COMPENSATION PLAN
James W. Krause
James Barden
Michael J. Boden
Sandra M. Buffa
Robert Edwards
Mitchell Goodman
Charles M. Johnson
Angus C. Morrison
Robert W. Stein
Michael Thomas
Patric L. Welch
<TABLE>
<CAPTION>
EXHIBIT 11
NATIONAL VISION ASSOCIATES, LTD. AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Year Ended Year Ended Year Ended
December 30, December 28, January 3,
1995 1996 1998
------------ ------------ ------------
<S> <C> <C> <C>
NET INCOME (LOSS) $(1,520,000) $ 3,480,000 $ 5,573,000
=========== =========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 20,537,799 20,618,349 20,676,359
BASIC EARNINGS (LOSS) PER COMMON SHARE $ (0.07) $ 0.17 $ 0.27
=========== =========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 20,537,799 20,618,349 20,676,359
Options for common stock assumed
to be converted using the
treasury stock method -0- (a) 88,280 162,806
----------- ----------- -----------
AVERAGE COMMON SHARES
OUTSTANDING, as adjusted 20,537,799 20,706,629 20,839,165
=========== ========== ===========
DILUTED EARNINGS (LOSS) PER COMMON SHARE $ (0.07) $ 0.17 $ 0.27
=========== ========== ===========
</TABLE>
(a) Options for common stock and other dilutive securities are excluded
from the calculation of weighted average shares outstanding for
diluted earnings per common share during 1995 as the effect would
be anti-dilutive.
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
1. Mexican Vision Associates, S.A. de C.V.
2. Mexican Vision Associates Operadora, S. de R.L. de C.V.
3. Mexican Vision Associates Servicios, S. de R.L. de C.V.
4. NVAL Healthcare Systems, Inc.
5. NVAL Visioncare Systems of California, Inc.
6. Midwest Vision, Inc.
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our reports included in this Form 10-K, into the Company's previously
filed Registration Statement File No. 33-71882.
/s/ Arthur Andersen LLP
Atlanta, Georgia
February 17, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT JANUARY 3, 1998 (UNAUDITED) AND
THE CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE 12 MONTHS ENDED
JANUARY 3, 1998 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000868263
<NAME> NATIONAL VISION ASSOCIATES, LTD.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-START> DEC-29-1996
<PERIOD-END> JAN-03-1998
<CASH> 2,559
<SECURITIES> 0
<RECEIVABLES> 6,828
<ALLOWANCES> 762
<INVENTORY> 23,271
<CURRENT-ASSETS> 32,655
<PP&E> 80,334
<DEPRECIATION> 36,692
<TOTAL-ASSETS> 83,250
<CURRENT-LIABILITIES> 20,484
<BONDS> 0
0
0
<COMMON> 208
<OTHER-SE> 36,160
<TOTAL-LIABILITY-AND-EQUITY> 83,250
<SALES> 186,354
<TOTAL-REVENUES> 186,354
<CGS> 86,363
<TOTAL-COSTS> 86,363
<OTHER-EXPENSES> 89,156
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,554
<INCOME-PRETAX> 9,281
<INCOME-TAX> 3,708
<INCOME-CONTINUING> 5,573
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,573
<EPS-PRIMARY> .27
<EPS-DILUTED> .27
</TABLE>
